Weekly Radar: Second-guessing Japan flows as global growth slows
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.
How a student took on eminent economists on debt issue – and won http://t.co/QzCTtpAAhn via @reuters
RT @reutersJoelD Chart showing swing to Spain and Italy away from Japan, U.S., Germany among Global Bond funds http://t.co/0MGS3vJ0Rk
‘Naked’ CDS ban and euro zone calm
LONDON (Reuters) – The surprising stability of euro government bonds this year owes much to the European Central Bank’s powerful pledge of support, but many wonder if regulation to limit speculation also plays a part.
European Union regulators acted last November after two years fretting about financial derivatives called sovereign credit default swaps (SCDS), insurance-like contracts offering protection against the risk governments default, and suspecting they aggravated serial euro government debt crises.
Analysis: “Naked” CDS ban and euro zone calm
LONDON (Reuters) – The surprising stability of euro government bonds this year owes much to the European Central Bank’s powerful pledge of support, but many wonder if regulation to limit speculation also plays a part.
European Union regulators acted last November after two years fretting about financial derivatives called sovereign credit default swaps (SCDS), insurance-like contracts offering protection against the risk governments default, and suspecting they aggravated serial euro government debt crises.
Herd scatters again as correlations weaken
LONDON, April 5 (Reuters) – The investment herd is
scattering again in a sign of less stressful times, encouraged
by resolute central bank protection even if scarce growth and
jobs may deter funds from straying too far.
One of the defining features of the crisis of the past six
years has been hyper-correlation of global markets – where
assets as diverse as equities and commodities, high-yield debt
or emerging markets moved in lockstep as fears for the stability
of the global financial system ebbed and flowed.
Weekly Radar: Q1 earnings test as the herd scatters
US Q1 EARNINGS START/DUBLIN EURO GROUP MEETING/US T-SECRETARY LEW IN BERLIN-PARIS/US-FRANCE-ITALY GOVT BOND AUCTIONS/FRANCE NATL ASSEMBLY VOTES ON LABOUR REFORM/VENEZUELA ELECTIONS
World markets have started the second quarter in an oddly indecisive mood given that Q1 turned out to be yet another bumper start to the year, looking to extend record stock market highs on Wall St but lacking the juice of new information to make a decisive break while Europe splutters and emerging markets and commodities head south. Two important pieces of the U.S. jigsaw will likely emerge over the coming week with this Friday’s US employment report and the start of the Q1 corporate earnings season next week.
Jobless youths could drag on recovery
LONDON (Reuters) – The global economy is recovering – although the younger you are and the longer you’ve been out of work, the less likely it is that you’ll have noticed.
A modest upturn in the major developed economies flagged last week by the Organisation for Economic Cooperation and Development should be a considerable relief for Western countries still struggling to run down huge debts.
Analysis: Jobless youths could drag on recovery
LONDON (Reuters) – The global economy is recovering – although the younger you are and the longer you’ve been out of work, the less likely it is that you’ll have noticed.
A modest upturn in the major developed economies flagged last week by the Organisation for Economic Cooperation and Development should be a considerable relief for Western countries still struggling to run down huge debts.
Investors wary of “slow panic” on growth after Cyprus rescue
LONDON (Reuters) – World markets have reacted calmly to the twists and turns of Cyprus’s financial rescue in the last fortnight but many investors fear the economic fallout is yet to come.
They have sold European assets, rather than make a global dash for safety that could signal concerns about a euro breakup.
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