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Abenomics and other Drivers of Holiday Markets

Marc To Market's picture




 

The main feature in the foreign exchange market continues to
be the yen’s weakness.  This weakness,
based on expectations that the new Japanese government will succeed in driving
the dollar to JPY90 with a combination of more aggressive monetary and fiscal
policy (“Abenomics), is offering support to the other currencies.  The yen sales are a combination of momentum
and carry strategies. 

 

There are two other forces in the market as well.  First, the market is anticipating a further
reduction in tail risks in Europe.  Of
course the large moves away from the abyss this year are clearly the doing of
the ECB with its long-term repos and offer of (conditional) outright
purchases.   

 

However the European
Commission will reportedly do its part by granting several countries, including
France and Spain, an extra year (and maybe two for Spain) to reach the 3% deficit
target.  An official announcement has not
been made, but the signals from the EC and the Commissioner for Economic and
Monetary Affairs Rehn are unmistakable.

 

The other driver is the looming US fiscal cliff and debt
ceiling.  Yesterday the Treasury Department
indicated that it will begin taking special measures to avoid violated the debt
ceiling.   After last week’s failure in
the House of Representatives, attention turns to the Senate.   With the Democrats enjoying a slim majority,
it is possible that they vote on a bill along the lines that Obama
outlined. 

 

There are a couple of other developments to note.  In Italy, “Agenda Monti” is drawing some
support from the UDC, some current cabinet members and some breakaway politicians.  A poll suggests such support may translate
into 15-20% of the vote in the late Feb election.  Berlusconi at one and the same time wants to
maintain that Italy is the second strongest economy in the euro area behind
Germany and that Monti has driven the economy into the ground.    

 

Although it is hard to maintain both
simultaneously, the unity of opposites during a campaign seems all too
common.  Perhaps the most important character
in the Italian drama is neither Monti nor Berlusconi at the moment, but the
center-left leader Bersani.  He already
made the most sensible response to Monti’s manifesto, saying that he agrees
with some, others a bit less so and other are open for discussion.  Bersani has his own ambitions and seems
reluctant to move over for Monti. 

 

In the US, we are also monitoring the labor dispute at ports
on both coasts.  The eastern seaboard and
gulf port dispute is the most pressing at the moment.  A last ditch effort to meet with federal
mediators was agreed upon, but time is running out.  The current contract extension expires Saturday
night.   The ports handle a great deal of
consumer goods and a labor dispute would disrupt the retail sector as well as
distort trade and employment data.  Only
container traffic would be impacted (so autos and some perishable items are not
included nor is  military cargo). The National Retail Federation and various other
industry associations are calling on Obama to invoke his authority to order a
cooling off period.

 

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Thu, 12/27/2012 - 14:21 | 3099420 BraveSirRobin
BraveSirRobin's picture

If we impoverish all workering people around the globe with competitive currency devaluations, eventually the entire world will have extremely competive labor rates and we will see an explosion in wealth and income. . . or something like that.

 

Thu, 12/27/2012 - 12:44 | 3099110 mess nonster
mess nonster's picture

Look, Japan is the tip of the iceberg- tons, trillions of QE, and all it has done is bloat the balance sheets,while everyone else experiences deflationary pain.

Abe wants to goose the BoJ into raising the inflation target so (?) more money can get into the velocity vortex. BoJ doesn't want to, for reasons obscure (oh wait, they don't want to lose "independence"!!!) until one remembers that, during the Meiji revolution, the BoJ was formed "on a Belgian model"...

Huh? Sorry for asking the question, but who started the Belgian banking system in the 1850's?

 

Thu, 12/27/2012 - 11:32 | 3098893 bank guy in Brussels
bank guy in Brussels's picture

Note to Marc Chandler of 'Marc to Market'

Time to improve your article drafting ... Microsoft Word on your smartphone may not quite cut it, unless you review it and correct the formatting errors

Better to draft in WordPad with spelling errors, than publish on ZeroHedge with all these hanging line endings ... a pain to read ... loses a good chunk of your audience

Thu, 12/27/2012 - 11:39 | 3098920 Orly
Orly's picture

Perhaps someone should mention this to Reggie Middleton.  Now that stuff is impossible to read...

Thu, 12/27/2012 - 11:36 | 3098913 Jack Sheet
Jack Sheet's picture

Better still would be to cease posting of this type of "non- information"

Thu, 12/27/2012 - 11:40 | 3098925 Orly
Orly's picture

Let me guess: your gold is still shiny.

;?

Thu, 12/27/2012 - 15:41 | 3099618 Jack Sheet
Jack Sheet's picture

Well, you and Marc could have a telephone conference instead....

Thu, 12/27/2012 - 16:35 | 3099750 Orly
Orly's picture

Why do you have a Euro as an avatar if you know absolutely nothing about it?

Thu, 12/27/2012 - 11:35 | 3098886 Orly
Orly's picture

I can only wonder when the market is going to settle down against the yen.  There was an interesting article from Nomura that appeared on MarketWatch early this morning that gave several reasons for the imminent reversal of the yen to the upside.  The main reason was that nearly all of the big players have cashed in their shorts and are waiting for another signal.  Some have even gone long already, probably believing that these moves are way overdone.

http://blogs.marketwatch.com/thetell/2012/12/27/yens-slide-against-dollar-unlikely-to-last-long

It seems that the tail end of yen weakness lately has been brought about by outside factors, most likely including repatriation of a lot of Euros, which have gone to prop up risk currency pairs like the EURUSD, USDJPY and EURJPY.  That leaves a strong divergence between risk asset levels (i.e., stocks...) and where the yen crosses have risen during this stock correction.  As the pairs move back into tandem (correlation...) with risk asset levels, it could be a Deuzy!

The EURJPY is probably the pair to watch for an indication of when yen weakness will reverse because the pair is most correlated with stock markets.  Technically speaking, the EJ pair has breached an important number at 114 and has run into an area of strong resistance, given the long congestion area of mid-2010 to mid-2011.  The pair has, in fact, reversed very strongly even as I write this message. It may be worth a look...

:D

Thu, 12/27/2012 - 09:43 | 3098588 Jack Sheet
Jack Sheet's picture

@ Widowmaker
Agreed sir. For the life of me I can't understand the aim of this column.

Thu, 12/27/2012 - 09:50 | 3098601 negative rates
negative rates's picture

Perhaps it was not meant for you too understand, if you get my drift.

Thu, 12/27/2012 - 08:47 | 3098517 Widowmaker
Widowmaker's picture

What market?

This is a central planner's experimetal science class.

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