Yen Skyrockets While Global Markets Melt, The Japanese Yen skyrocketed yesterday… Negative Yielding Bonds Everywhere; The global bond markets of the developed nations saw a major rally… What’s Going On…?, A Closer Look At Friday’s Employment Figures, Last Friday’s employment data was a very mixed bag. What Way Will NFP Take The Dollar…? So today’s big figure is expected by many to be the first below 200k since October last year.
Yen Skyrockets While Global Markets Melt
11.02.2016 The Japanese Yen skyrocketed yesterday after breaking key support at 116.00 against the greenback. It looks like for now, the markets have entirely shrugged off the recent BoJ attempt at decreasing the Yen through the introduction of negative interest rates. The pessimism running throughout the markets is so strong at the moment that any optimism is just treated as a good selling opportunity. Global bond markets are all following suit, with the German Bund breaking the key 165 level this morning, moving ever deeper into negative yield territory.
With the boost in demand for stable government bonds and the major surge in both the key risk off currencies; the Yen and Swiss Franc, this is a major signal that institutional investors are planing for the worst. We’re now seeing bear markets in all of the following economies: UK = -21% Japan = -23.2% France = -24.3% Germany = -28.3% Hong Kong = -32.5% China = -46.7% The U.S is showing slightly healthier signals, trailing behind at just -14% (S&P 500), however the Dow Jones Transportation Index is sitting at -24.1%, the Russel 2000 is at -25.6% and the KBW Nasdaq Bank Index is at -26.1%. All in all, it doesn’t look good at the moment. More than likely we’ll see further declines across the global stock markets, presenting huge opportunities for some and massive losses for others!
Negative Yielding Bonds Everywhere; What’s Going On…?
9.02.2016 The global bond markets of the developed nations saw a major rally yesterday, with bond yields turning more negative for many European countries. Risk off sentiment is strong in this economic climate; more and more it’s looking like 2016 has brought on the beginning of a global bear market. In many ways, the world has turned upside down. It is not just central banks that have set policy rates below zero, but the entire German yield curve out through eight years have negative yields. Japan, which has the largest debt burden relative to GDP, has negative yields out through nine years and the Swiss curve is negative through 15 years. Not only that, but Ireland, which holds national elections in a couple of weeks, has negative yields out four years and Spain, which is struggling to put together a government following the election at the end of last year, has negative rates through two-years. Is it actually worth paying interest to “allow” a government to hold your cash…? What ever happened to chucking it under your mattress. For now, it doesn’t look like this trend will stop either. With the ECB expected to increase QE to 80 million a month, most probably extending the time horizon as well, the world’s the limit for the European bond markets. Institutions will continue to buy them up as along as they believe they can sell them for more, and of course with the ECB and BoJ behind all this, it’s a pretty good bet.
A Closer Look At Friday’s Employment Figures
8.02.2016 Last Friday’s employment data was a very mixed bag. The U.S created fewer jobs than anticipated and the December gain was revised lower. However, the other details were actually much better than forecast. The unemployment rate ticked down to 4.9%, a new cyclical low, despite the rise in the participation rate (62.7% from 62.6%). Average hourly earnings were also stronger than forecast, coming in at 2.5%. The consensus expected a 2.2% year-over-year pace and the December pace was revised to 2.7% from 2.5%. The average weekly hours also ticked up to 34.6 from 34.5 hours. Although this doesn’t sound like much, with over 150m workers, a 6 minute a week increase works out to be around 400k full-time equivalents.
The income increase bodes well for consumption, and this will likely be seen in next week’s retail sales report. We already know that auto sales increased sequentially. The 29k increase in manufacturing jobs was the largest increase since November 2014; the consensus expected a 2k decline. The December rise was revised to 13k from 8k, which bodes well for manufacturing output and construction added 18k jobs. December had added 48k, perhaps helped by the unseasonable warm weather. Despite the talk of a recession in the U.S, the data released on Friday is not the type of data that is associated with an economic contraction. The fact that the US economy has hit a soft patch is indisputable, however this is not the same thing as a contraction. While I have doubted the Fed’s four hike call, I think the market is similarly extreme in not fully pricing in a single hike this year. Separately, the US trade balance was reported in line with expectations. The Atlanta Fed’s GDP tracker says the US economy expanded by 1.0% in Q4 and 1.2% in Q1 16.
What Way Will NFP Take The Dollar…?
5.02.2016 So today’s big figure is expected by many to be the first below 200k since October last year. We’ve had a slurry of poor data from the U.S over the last couple of months. Both ISM Indices have showed declines, with the manufacturing index dropping further into contraction territory. In addition to the poor data, and probably to be honest as a result of that data, the markets are only giving a 30% chance to another Fed hike in 2016, with an 8% chance of a hike in March’s meeting. The market sentiment has seen an abrupt change to what we saw in Q4 2015, with specific reference to the sentiment behind the “bullish greenback”. If we do get a poor figure today, say below 170k, then we should expect further dollar declines.
However, I do have a slight inclination that the markets are over selling the dollar at the moment and possibly pricing in an NFP below 150k. Of course, if we do get a nice figure, say above 200k, then we could see some dollar strength before the end of the week. This would give us a lovely weekly rejection candle off some key resistance/support levels within most of the majors. As much as I’d like to see a nice big fat jobs report, supplying a bit of optimism back into the markets, the chances do look a bit grim. Deep down I’d have to say I agree with most analysts in the current predictions. More than likely we’ll see further declines across the board in the greenback. In reality who knows though, trade what you see and stay safe!
