Prior Week’s Top Market Movers And Their Lessons For This Week
Here’s a brief overview of what was moving virtually all global markets last week and their lessons for the coming week
Top Market Movers Each Day & Ramifications
MONDAY
Markets weigh positive US jobs data versus poor China reports and a weak Italian bond sale. Japan stocks keep rising on nothing but JPY weakness despite actual weak machine orders data. It appears that Japanese traders believe the drop is temporary and that a weak Yen will ultimately revive these and other export related stocks.
Asia
Indexes were mixed, with mostly modest up or down moves as a delayed reaction to the positive US jobs figures was balanced downbeat China data. Only Japan was up decisively, because the positive US jobs reports boosted US tightening expectations, which in turn strengthened the USD and thus sent the USDJPY higher. That, as usual, was a boost for Japanese shares, which have been rising on any JPY weakness versus the USD. Indeed, the Nikkei ignored a 13% drop in machine orders (versus and expected 1.4% decline).
Europe
Here too indexes were mixed with overall modest up or down moves as traders weighed bullish US jobs data from Friday against an unexpectedly weak Italian bond sale that sent both Spanish and Italian shares plunging. The overall impression among EU traders was that this was just another minor pullback to be bought in what is still very much a bull market ready to test all time highs on hopes for more stimulus that the ECB, as well as other major central banks like the BoJ and BoE, seem ready to eventually enact.
US
All of the major indexes were modestly higher as US markets shrugged off the weak China data and continued to feel the effects of the good job reports from Friday more directly than Asia or Europe. Remember too, that the Fed remains the only central bank that isn’t just talking about stimulus plans but actually pumping $85 trln into the markets. Given the falling earnings expectations, David Rosenberg says this isn’t a normal earnings driven rally, but rather one created by Fed money that is causing US stocks to outperform most of the world. Sequestration isn’t bothering anyone, as for now it’s only about $85 bln, a month’s worth of Fed bond buying.
TUESDAY
No real market moving news.
Asia
Almost all indexes were modestly lower, but China was down hard as shares continued to suffer from official attempts to cool the property market. Meanwhile Japan shares were pressured on signs that the pro stimulus nominee for Deputy BoJ Governor may face opposition to his appointment.
Europe
Shares were essentially flat, taking their cue from similar performance in the US and Asia and lack of significant news, ignoring a good Spain bond auction with falling borrowing costs even as Italy’s rise, perhaps because better Spain bond auctions have become expected, while markets are still adjusting to new Italian political uncertainty.
US
Here too shares were mixed, essentially flat as the session lacked any real bullish or bearish catalysts. The DJIA however, did manage to recover from early losses and scratch out a minor gain to keep its win streak alive
WEDNESDAY
Bearish China tightening and bullish JPY weakness in Asia, nothing moving European and US markets as a weak Italian bond auction is balanced by better than expected US retail sales.
Asia
Virtually all indexes modestly lower but China stocks continue to fall hard down 1-1.5% on signs of further official tightening moves (I, II) focused on the real estate sector. Japan too was down solidly, 0.61% on profit taking prompted by, what else, a firmer JPY, of course. Does anything else matter these days for Japanese stocks?
Europe
Most indexes here too were modestly lower, France and Germany flat as a bad Italian bond auction was balanced by good US retail sales, which helped European stocks recover most of their losses. European firms with more US exposure fared best on the day.
US
The major indexes were slightly positive, once again essentially flat but still positive. The big news of the day was better than expected retail sales. While these didn’t move markets (nothing did) they showed the US consumer has still not been stopped by the feared rise in payroll taxes or sequestration uncertainty.
THURSDAY
Pro-stimulus BoJ appointments progress, boost easing hopes and stocks for Japan. China pullback halts on bargain hunting, Europe and US up on promising US economic data.
Asia
Indexes again mixed, again Japan up solidly after 2 down days on fading opposition to appointments of ultra pro stimulus BOJ leaders. China too managed a positive close after days of spiraling on moves to slow China housing prices and speculation on them.
Europe
All indexes were up strongly about 1%, Spain was up about 2% on good US data, (falling jobless claims, low inflation)
US
Here too all indexes up solidly about 0.5%, for the same reasons as in Europe, the good US data, aided by ongoing technical momentum that’s been giving markets a bias to focus more on positive news that’s with the trend (higher) and downplay news that contradicts the prevailing trend.
FRIDAY
Asia up on removal of political uncertainty in Japan and China, Europe and US down on a combination of disappointing US data and high markets that were ready to take profits on an excuse such as that.
Asia
Indexes were mixed, with Japan soaring 1.45% on fresh easing hopes from the newly appointed and confirmed BoJ leadership, China modestly up on optimism from a smooth transfer of power, and the others mixed with India and Korea down hard while Australia was up 1.7% as local headlines dominated.
Europe
Virtually all lower to varying degrees, UK, France down ~ 0.7%, Germany, others down less than 0.5% on profit taking prompted by a combination of weak US consumer confidence data and already high markets which, by their very elevated nature, are vulnerable to any profit taking excuse.
US
US indexes were all modestly lower for the same reasons noted for Europe.
Conclusions And Lessons
There was just too much to cover all in one article, so we’re breaking it out, check out which parts below interest you and see the full articles for full details.
Top Market Movers This Week
Bearish
- Chinese attempts to cool property markets weighed on Chinese markets and those linked to them
- Weak Italian bond sale pressured Europe, US stocks.
Bullish
- Rising BoJ stimulus hopes as pro stimulus appointees overcome opposition and are confirmed by legislature boosted Japanese and related stocks
- Overall positive US data
Observations
European and US markets seemed to move together for the same reasons, moving mostly with US data. That’s been a big theme of the past months’ rally in Western financial markets. The US provides the good news, Europe avoids providing enough new bad news to overwhelm it.
Bull Market Charging To New All Time Highs Or Hitting Triple Top?
That is the question. For an overview of the evidence pro and con, bullish and bearish, fundamental and technical, see our full article on the topic here.
US Dollar Bull Market: Part 2
Last week we looked at the growing speculation that the USD was entering a new long term bull market here. This week we went further. See here for part 2 of that story.
Your Weekly Reminder To Hedge Currency Risk
While that story is big by itself, it brings up an even more significant point. Currencies trade relative to one another, so even an abused child like the US dollar is likely to have its up years simply because its counterparts are suffering even more.
It is possible that the USD will see relative strength in years ahead, though I suspect only against certain currencies that are even more badly neglected for the sake of other policy priorities.
Diversifying your assets by currency exposure, just like you would be sector and asset type, isn’t just about trying to profit from being in the better currencies. It’s at least as much about trying to protect yourself from losses you can’t afford to take. Like any other diversification, you do it because you accept that you’re not likely to time markets or correctly call what will be the hottest story of the year.
Therefore, those trying to build an “all weather” savings fund or passive income stream that holds its value over years and decades must be diversified into the healthier currencies, or at least be diversified out by more than just one or two.
Just because you spend in just one currency, or hold stocks of big multinationals, doesn’t mean you’re insulated from the risks of having everything you own denominated in or linked to just one currency.
- Equities of multinational companies in theory could do that, but in fact they tend to move with their local stock indexes.
- Most of us spend in one currency, but most of the goods and services we buy either have a high proportion of inputs that are either imported or linked to global prices.
See here or here for information about one good guide from your humble author about simpler, safer ways to get that currency diversification than you’ll find in most guides on currency trading or foreign asset investing.
DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.
