Weekly Radar: Second-guessing Japan flows as global growth slows

April 18, 2013

Figuring out what was driving pretty violent market moves this week was trickier than usual – and that says something about how much the herd has scattered this year, with ‘risk on-risk off’ correlations having weakened sharply. Just as everyone puzzled over a potential “wall of money” from Japan after the BOJ’s aggressive reflation efforts, the bottom seemed to fall out of gold, energy and broader commodity markets – dragging both equity markets and, unusually, peripheral euro zone bond yields lower in the process.  As dangerous as it may be to seek an overriding narrative these days, you could possibly tie all up these moves under the BOJ banner – something along these lines: the threat of a further yen losses pushes an already pumped-up US dollar ever higher across the board and undermines dollar-denominated  commodities, which have already been hampered by what looks like yet another lull in global demand. Developed market equities, whose Q1 surge had been reined in by several weeks of disappointing economic data and an iffy start to the Q1 earnings season, were then hit further by a lunge in heavy cap mining and energy stocks. The commodities hit may also help explain the persistent underperformance of emerging markets this year. What’s more the lift to Italian and Spanish government bonds comes partly from an assumption any Japanese money exit will seek U.S. and European government bonds and relatively higher-yielding euro government paper may be favoured by some over the paltry returns in the core ‘safe havens’ of Treasuries or bunds. The confidence to reach for yield has clearly risen over the past six months as wider systemic fears have receded – something underlined in dramatic style this week by a huge lunge in gold,  now lost almost 20 percent in the year to date.

While all that logic may be plausible, there have been dozens of other reasons floating around for the seemingly erratic twists and turns of the week.

The only truth so far is that everyone is still just guessing about the likely extent of a Japanese outflow and confidence about global growth has received another setback.

It’s possible the BOJ focus may be a distraction from what looks likes the yet another Spring slowdown in the world economy – a worrying portent for Europe in particular where much of the continent is still in recession or semi-recession since late last year. Most forecasters and asset managers seem to retaining faith in the gradual recovery thesis, but they are nervous as economic surprises turn negative everywhere. Next week’s flash readings for April business surveys, or PMIs, may well be the number of the week as a result – with Q1 GDP from the US and UK also topping list of data releases too. Any fallout from this Friday’s G20 meeting in Washington could also set the tone early next week as yen moves may be discussed alongside growing doubts about the wisdom of austerity in recessions. Otherwise, it’s a big week for Q1 earnings on both sides of the pond.

Final day of IMF Spring Meeting Sun

Israel rate decision Mon

EZ April consumer confidence Mon

US March existing home sales Mon

Europe Q1 earnings Mon: Suez, STMicro

US Q1 earnings Mon: Halliburton, Texas

OECD Japan survey Tues

Global April flash PMIs Tues

Italy April consumer confidence Tues

UK March govt borrowing data Tues

US March new home sales Tues

Hungary rate decision Tues

US Treasury 2-yr auction Tues

Europe Q1 earnings Tues: Scania, SEB, Swedbank, Stora Enso

US Q1 earnings Tues: Amgen, DuPont, Xerox

NZ rate decision Weds

German April Ifo Weds

German 30-yr bond auction Weds

US March durable goods orders Weds

US Treasury 7-yr bond auction Weds

Europe Q1 earnings Weds: ABB, Credit Suisse, Barclays, Daimler, Ericsson, France Tel, GSK, Iberdrola, Nordea, Peugeot, Standard Life, Svenska Handelsbanken

US Q1 earnings Weds: Boeing, T Rowe Price, Qualcomm

UK Q1 GDP Thurs

Euro group’s Dijsselbloem at European Parliament Thurs

Europe Q1 earnings Thurs: Unilever, Astrazeneca, BAT, Bayer, Santander, Saab, Saint Gobain, Areva, Pernod Ricard, Volvo

US Q1 earnings Thurs: Exxon, Colgate-Palmolive, Coca Cola, Dow Chemical, Time Warner, UPS,

Japan March, Tokyo April inflation Fri

France’s Hollande in Beijing Fri

BOJ decision and presser Fri

French April consumer confidence Fri

EZ March credit/M3 Fri

SNB AGM Fri

US Q1 GDP Fri

US Q1 earnings Fri: Tyco

Malaysia/Iceland parliamentary elections Sat

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