Chip, the Japanese Stock Market went higher than many
though in the past 6 weeks and has held up pretty good
on our sell-off.
We have a reasonably stable currencies, more weakness in
the Euro than many expected but $/yen seems to be
less volatile than it might have. And the Yen is not
out of the range that many japanese companies were looking
for in the Tankan survey.
Part of the reason, I have not been as negative on the US
equity market the past week is the relative stability we
have seen in the global currency markets. Credit spreads
have come in the past few weeks, also contructive.
And the US Buck is strong, many have pinned a liquidation
bear market in the US on the back of a collapsing dollar.
Well, first we need for that to occur..... not happening yet.
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----Intervention Chatter: Dollar-yen is back above the Y105 level in afternoon trading, receiving some modest support from speculation of BoJ intervention this weekend. Of course, what really needs support is the euro, which continues to hover near life-lows against both the dollar and the yen. However, as we mentioned yesterday, the perceived apathy towards the euro on the part of the ECB has dampened the prospects for any support from Japan.
Also of interest, were comments from a BoJ official, who told the Nihon Keizai that "the yen's current level is within the range that corporations predicted in the March tankan survey of business sentiment." In other words, the BoJ?s concerns about a stronger yen may not be as pressing as some would think. There is even some speculation that if Hayami really did have is way, he would allow the yen to strengthen further to help fuel recovery expectations.---------
that's a pretty positive development.
----As far as the euro is concerned it seems not even the prospect of weaker stocks can help. The euro-dollar fell to a new low for the move this morning at 0.9446 and looks set to continue down to the 0.9390 then 0.9330 area over the near term. Speaking last night the ECB's Welteke said there was little the ECB could do to stem losses but, as ever, urged European governments to undertake structural reform.
Interviewed in the German press this morning ECB economist Issing said euro growth may temporarily overtake the US later this year. We expect European growth to overtake around late Q3 or Q4 on an annualised basis but it will probably only stay that way for a coupe of quarters ? assuming of course the US has a ?soft landing? ? which at this point in time remains the central case scenario.----
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But just as the euro failed to rally on last week's bloodletting in U.S. equity markets, it couldn't take advantage of the wider-than-expected U.S. trade gap.
A day after closing in New York below 95 cents for the first time in its 16-month history, the European single currency dipped below its previous historical low of 93.90 cents from Feb. 28 . After a brief stab at recovery, the euro hit bottom at about 93.57 cents around noon in New York, before climbing slowly back toward the 94-cent mark.
The euro sank against other major currencies as well. Late in the afternoon, it was buying 98.45 yen, compared with 98.77 yen at the beginning of the New York session and 99.23 yen late Tuesday.
Analysts were hard-pressed to identify any single factor that triggered the euro's latest fall. Without any obvious place to put the blame, traders had to ask "how low can the euro go"?
"It's not pretty," said David Gilmore, a partner at FX Analytics in Essex, Conn. "How far down it will go I don't know, maybe 90 to 91 [cents], maybe even lower."
Craig Larimer, managing director of international research at Bank One in Chicago, is looking even lower -- at a potential 80 cents, based on its current rate of decline.
"We're confronted with a market that's in an extended price adjustment without knowing where the value lies," said Mr. Larimer. "You're in new territory, because what is value recognition here?"
Rumors -- later denied -- that Austria was considering leaving the E.U., news of political turmoil in Italy and the recent rebound in U.S. equity markets also put pressure on the euro.
"You would have difficulty putting an economic case behind this. In fact, it flies in the face of it," said Mr. Larimer.
European growth rates have been revised up, the European Central Bank has been raising interest rates and is expected to do so again, and inflation in Europe is low.
In the U.S., the consumer price index rose more than expected, there's volatility in the equity markets, "and today there was another record trade deficit. But does the dollar care? No," said Mr. Larimer.
Euro-zone officials have been saying for months that the euro has the "potential to appreciate" because of the strong fundamentals underlying the currency. But so far that has failed to materialize, and the lack of confidence is pushing more players to get out of their long positions.
"At the end of last year and this year, people were saying the U.S. would inevitably slow and Europe's economy would pick up, and that tempted a lot of longer-term players to go long on the euro," said Mr. Gilmore. "That's one of reasons there's been a cap on euro, these guys are now unwinding positions." |
