11/30/12: While the US dollar index itself was little changed this past week, the Japanese Yen was anything but. After breaking down through support just two weeks ago, the Yen is in virtual free fall as talk from the BOJ (about a need for further stimulus) and a general 'risk-on' tone have both helped to bring the Yen down dramatically. In almost reverse fashion to Europe though, regional stock indices look rather bullish in the face of Yen weakness and is the focus of this week's WCTS Spotlight. Elsewhere, it is interesting to see the historical relationship between the grain and meat markets play itself out. Grain prices look rather weak and conversely meat prices look strong - is a spread trade in Oats/Hogs developing?
As a follow up to recent posts regarding how poor Europe looks from an investment landscape, I though this week we ought to take a look at Asian markets and what the current currency gyrations may be implying for the region in general. Interestingly, the Japanese Yen has acted almost opposite to that or the Euro. Unlike the very weak Euro-Fx, a strong Yen seems to be what is holding this region down. Considering how dependent Asian markets are on manufactured exports, it shouldn't surprise anyone that a strong Yen is literally killing Asian companies. As we have pointed out in the past, currencies are often driven by short term interest rates (and more importantly, the public's perception of how secure those returns will be). When the US economy collapsed (and with it US short term interest rates) there was no longer a premium to hold US paper over Japanese. Additionally, many investors have come to believe North America will have to go through a 'lost decade' similar to that Japan just went through. Given this backdrop, it was no wonder investors were fleeing the US dollar and running into what it perceived to be the only other reliable 'safe haven' to park their money. The Euro itself is simply not a viable alternative and you can only put so much money into gold.
With the recently released better than expected manufacturing data out of China (linked pair to the US dollar) and encouraging US housing market data, that 'panic' flight into the Yen seems to be waning. Couple this with a horrific domestic economic situation within Japan itself and escalating tensions with its trading neighbors and the end result could be an equally violent move out of the Yen. The question at this point, does the weekly support line (we are fast approaching) hold? We have just filled in an important gap and have made a text book OTE (70.5%) Fib. retracement so odds are there could be a sizable bounce into the end of the year. Regardless of the short term gyrations, we ought to appreciate the simple fact that the Yen's relentless rise seems to be in check (for the time being) and local economies seem to be cheering the news.
Looking at the price charts of the individual countries in the region we see that indeed, stocks are pointing higher, not lower here. It is interesting to see Japanese stocks turned violently higher on the break in the Yen and until the Yen itself shows signs of turning I believe the wind is at these countries backs not in their faces. I do see a nice little gap on the Nikkie (quite a bit higher than where we currently are) that suggests once filled we ought to see some cooling down in price appreciation. That gap seems to correspond well with the other countries upper channel boundaries and those channel lines shall represent my collective resistance zones going forward.
As has been pointed out elsewhere, we are now comfortably into a very healthy season for stock investors. Typically we enjoy a 'Santa Claus' rally into Christmas and with the US Presidential election, we have an added seasonal boost into January's inauguration.....
as one of my trading partners used to always tell me, "make hey while the sun is shining my boy...."
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the_rational_investor@yahoo.com
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