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We had a bit of a slow morning today. Investors caught their breath after Friday’s shenanigans and the continuation of the sharp equity sell-off during Monday’s US session. Fortunately for stock market bulls, the major US indices rallied off their lows in the last hour of yesterday’s trade led by energy stocks. This prevented a complete rout although it now looks as if any hopes of a recovery will be short-lived.

The overnight trade in Japan hasn’t helped sentiment. The Nikkei plunged and ended the session 5.4% lower. Meanwhile, the yield on the 10-year Japanese Government Bond turned negative for the first time ever. So now if investors choose to lend money to the Japanese government for ten years they won’t get all their money back. Investors are desperate for the relative safety of bonds over equities, and also expect the Bank of Japan (BOJ) to lose its fight against deflation. That’s disastrous given the double burdens of crippling government debt and the country’s ageing population.

Meanwhile the yen has soared – hardly what the Bank of Japan wanted after they launched their Negative Interest Rate Policy last week.

This is an updated USDJPY chart showing the break of support at 116.00 – can’t see much support below current levels:


It remains important to listen out for any attempts of intervention from the BOJ. Overnight they were “checking rates” as the USDJPY sold off. The news helped the pair rally off 114.20 to back above 115.50. However, the yen began to strengthen again ahead of the US open.

Investors are very jittery at present. The oil price is still a factor and it doesn’t help when it slips back below $30 per barrel (near-month WTI). There are also fears of a credit event occurring in the European banking sector with Deutsche Bank currently in focus. It is against this background that Fed Chairman Janet Yellen will deliver the first part of her testimony in Washington tomorrow. But it’s difficult to know what she can say to calm a particularly tense situation.

Disclaimer:
Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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