Freefalling Yen Levitates Equities Around The World

Confused why in the lack of any horrible economic news (unless of course someone leaked a worse than expected November payrolls print which would put QE4 right back on the table) futures are higher, especially in the aftermath of yesterday’s disappointing ECB conference? Then look no further than the Yen which has now lost pretty much all control and is in freeplunge mode, rising some 25 pips moments ago on no news, but merely as wave after wave of momentum ignition algos now make a joke of the Japanese currency, whose “Panic Premium” line of 123 (as defined by SocGen) is now just 240 pips away. At this pace, Japan’s economy, which as reported yesterday has just seen a record number of corporate bankruptcies due to the plummeting yen, may well be dead some time next week. Which, with Paul Krugman as its new and improved economic advisor, is precisely as expected. RIP Japan.

The other main focus of today’s session stems from yesterday’s after-market ECB source report which suggested that the ECB are said to prepare broad based QE package in January. This, in addition to the freefalling yen, has helped equities to rebound (Euro Stoxx +1.4%) with out-performance in peripheral equities and fixed income products with peripheral spreads tighter to the German benchmark. Oddly enough, when Draghi spoke yesterday, the market’s reaction was diametrically opposite: one wonders how many BIS trading desks were need to turn sentiment around by 180 degrees. Both ECB’s Weidmann and Nowotny have been on the wires this morning, with Weidmann providing his usual hawkish stance and as such failing to move the market, while Nowotny modestly deviated from his usual hawkish stance by saying that he agrees with Draghi’s stance with regards to QE.

In FX markets, USD/JPY has been buoyed by stronger equities making a firm break of 120 trading at its highest levels since 2007. Polls also suggest that Japan’s LDP party may take a super majority which would further help the Abenomics QQE campaign. EUR/USD has traded sideways and GBP/USD has retraced its overnight losses.

WTI, Brent and Gold all trade slightly lower on a lack of any fundamental news and the USD index in small positive territory up +0.2%. More specifically for metals markets, Copper prices pared some of yesterday’s gains amid the subdued tone seen across commodity prices and Chinese iron ore futures also declined as steel mills and traders are said to be cautious on restocking due to oversupply in the market. Nickel prices are on track for a weekly gain of nearly 6% on continued support after Indonesia upheld its raw-ore export ban.

In terms of today’s calendar, we kick this morning off in Europe with the second estimate of Q3 GDP data for the Euro-area along with German factory orders and Spanish industrial output. Away from payrolls and employment data this afternoon in the US, we’ll also have the October trade report, factory orders and consumer credit. There’s also more Fedspeak to look out for with Mester (on financial stability) and Fischer (on fiscal policy) but payrolls will likely be the main focus for today.

In summary: European shares rise, close to intraday highs, with the construction and autos sectors outperforming and basic resources, oil & gas  underperforming. Crude oil declines for fourth day. German factory orders ahead of ests., Bundesbank cut its economic forecasts for the country through 2016. The Italian and Spanish markets are the best- performing larger bourses, Swiss the worst. The euro is weaker against the dollar. Japanese 10yr bond yields fall; Greek yields decline. Commodities decline, with WTI crude, Brent crude underperforming and natural gas outperforming. U.S. factory orders, trade balance, consumer credit, nonfarm payrolls, unemployment, average earnings, labor force participation due later.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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