FX Technical Outlook: Yen and Dollar Weakness Set to Continue
FX Technicals by Marc Chandler of Marc to Market,
Remember Japan?
People are obsessed with the Euromess and the Fiscal Cliff. What about Japan? A few reflections via Caixin Online.
Every time I come to Japan to attend a conference, I am reminded of what a depression looks like in the 21st century. This time is no different: shops are not busy, restaurant owners wait anxiously outside for customers and are usually disappointed, empty taxi cabs roam the streets. Two decades after its property bubble began to deflate, Japan remains mired in deflation and contraction.
The economic statistics tell the horror story best. Japan’s nominal GDP in 2011 was 9 percent lower than in 2007 and 2.5 percent lower than in 1992! In 1992, the national debt was only 20 percent of GDP. It is now 230 percent. Essentially, 200 percent of GDP in fiscal stimulus hasn’t turned the economy around.
The depression dynamic begins with declining incomes. People then spend less to cope. Shops and restaurants become emptier. The weak demand depresses business profitability and investment. The former depresses the stock market, and the latter labor income. Both pressure people to spend even less.
Few people pay attention to Japan’s problems nowadays. Financial markets pay a lot of attention to the United States’ economic problems. But its nominal GDP rose 7 percent between 2007 and 2011 and is likely to rise another 4 percent in 2012. Japan could at best achieve zero growth in nominal GDP in 2012. The performance gap between the United States and Japan is 20 percent in nominal GDP since 2007. America’s national debt has doubled since 2007 and reached 100 percent of GDP in 2012. Its trend isn’t sustainable either. But Japan’s debt problem is more advanced in depth. Its debt crisis should occur before the United States’.
FX Positioning and Technical Outlook: What is Working
Guest post by Marc Chandler of Marc to Market.
Positioning and FX Outlook: The Price of Protection
Guest post by Marc Chandler of Marc to Market.
Our concern then is that Q4 is going to be more volatile that is currently implied and that has directional implications for the dollar. Many longer-term investors believe the US fiscal cliff and debt ceiling issues are the biggest risks facing the world economy. Others are more concerned about the unresolved European debt crisis an the signs of prolonged economic weakness.
FX Outlook and Positioning: Getting Tired?
FX comments by Marc Chandler of Marc to Market.The key may not lie with the economic data. The important steps announced by the ECB, Federal Reserve, and BOJ has stolen the thunder from the near-term economic performances. Instead, we suspect politics and positioning may be more important.
As we have noted, the signals coming from European officials indicate that there has been an important climb down from pushing Greece out of the monetary union and the indications from intrade.com, where the odds a country leaving the euro zone this year has fallen to the lowest in at least two years, suggest investors recognize this.
Exactly how the proverbial circle can be squared–how Greece’s debt outlook can be judged to be on a sustainable path–is not clear. Yet this is not the top issue on the agenda. In fact, since earlier this month, European officials appear to be playing for time, and not just for the mid-Oct EU summit, which had previously seemed to be the case. Instead, expectations have been massaged and now a November decision is more likely.
Instead of Greece, the political spotlight in Europe is on Spain. There are two conflicting impulses. On one hand, Spain is reportedly engaged in negotiations to design a structural reform package that could be adopted prior to formally asking for assistance that would in fact meet the Troika’s conditionality. These structural reforms, which may not include new taxes or spending cuts, could be announced toward the end of next week.
FX Positioning and Technical Outlook: Trend is Your Friend?
Marc Chandler on the latest FX moves.
The German Constitutional Court ruling, allowing the European Stability Mechanism to go forward, which in turn bolsters the ECB’s Outright Monetary Transaction program, has reduced the extreme tail risk that had been rising after the impact of the Long Term Repo Operations had worn off. It not only reduced peripheral yields, but has also re-opened the bank and corporate bond markets in Europe. The Dutch election results favored pro-European parties. The latest signals suggest that the risks of Greece being ejected from the monetary union has diminished and the odds of a country leaving EMU this year, according to the policy market at www.Intrade.com have fallen to about 15%, near its lowest level in two years.
In the US, following two disappointing monthly jobs reports, the Federal Reserve took bolder action than many, including ourselves, had expected. The open-ended nature of its newly announced purchases, which will focus on newly created mortgage-backed securities, is both quantitative easing and a way to encourage new mortgage lending. It also suggested that the bar to additional long-term asset purchases was low in the sense that the only thing that would prevent it would be a significant and substantial improvement in the labor market. Given the uncertainties surrounding the fiscal cliff and the dampening effect this has on investment and hiring decisions, the kind of improvement does not look particularly likely.
Currency Positioning and Outlook
Guest post by Marc Chandler of Marctomarket.
What to think
Guest post by Peter Tchir.
What Are Investors Thinking About Coming Into the Home Stretch?
Whether it is right or wrong, many still think of investing on a calendar year basis. So as we crawl through this period of incredibly low volatility and low volume it is time to start thinking about the home stretch. Coming into year end there are some striking numbers that investors and money managers must be thinking of and are likely to influence their decisions for here on out.
The S&P 500 is up 11.8% for the year. The Nasdaq is up 16.3%. Had you been lazy and just bought AAPL (which is allegedly the most owned stock by hedge funds), you would be up 55.8%. Had you “tried to lose client money” by buying banks, you would have failed there too. XLF is up 16.4% and even JPM, with the whale trade and LIBOR is still up 11.5% this year (remember how bearish everyone was on banks at the start of the year?).
Okay, what about Europe? Well an investment in the STOX 50 would be down 1% in USD, but still up 4.9% in Euro. The Nikkei is up 7.5% in Yen terms and 4% in dollars.
Japan Update
Guest post by Marc Chandler.
Currency Positioning and Technical Analysis
Guest post by Marc Chandler of Marctomarket.
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