Global Markets Overview - April 8, 2016

By @chelean on
Tokyo Stock Exchange
A man stands next to a stock quotation board displaying Japan's Nikkei Average (top) and the exchange rates between the Japanese yen and the U.S. dollar at the Tokyo Stock Exchange in Tokyo March 13, 2015. Reuters/Yuya Shino

There is a tussle underway between the bulls and the bears, and right now, the bears will be going into the weekend feeling like they have the upper hand. The ASX 200 looks set for an open at 4905 (-1.2%) and while 4900 is still some way off, a close through this level would be a blow for those with more optimistic souls and will represent the first consecutive three weeks of losses in 2016.

Locally, we should see BHP open down close to 3%, while the banks should be down between 0.5% and 1%. US crude is lower by 1.5% from the ASX 200 cash market close, while copper was smashed with price 3.1% lower in the same duration. Copper needs to hold $2.00 p/lb, but in terms of global drivers, sentiment pales in significance to oil and more specifically the JPY.

USD/JPY has taken a bath of late hitting a session low of ¥107.66, although it has rebounded to claim the 108 handle. This cross commands the centre of the trading universe and matters to Australia as the JPY strength highlights a general failure of Abenomics and the greatest monetary policy experiment ever. Japan’s move towards negative rates, amid a general inability to create substantial nominal GDP and therefore inflation, is now resulting in a wave of JPY buying.

Japanese corporates have been forced to hedge their foreign currency exposure (many had assumed a USD/JPY rate of ¥117.5), however there is little doubt that the speculators are having a field day pushing the pair down. There seems growing belief that the Bank of Japan are powerless to stop the rout. In saying that, USD/JPY is oversold and I suspect a bounce of sorts from current levels which could provide upside support to our call for the Nikkei to open 2.2% lower.

Watch Chinese markets today as it is clear the moves in JPY and EUR are widely seen as positive for Chinese financial conditions. Various China ETFs (FXI and ASHR) suggests Chinese markets could actually take part in  the clear negative session today.

The saying ‘hedge because you can (and its cheap) and not because you’re forced too’ could ring true very soon.

 

CHRIS WESTON
Chief Market Strategist

IG, Level 15, 55 Collins Street, Melbourne VIC 3000
D: +61398601758 | T: +61398601711
www.ig.com

IG Markets

 

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