Quotes from the news wire:
In a lot of respects I think yesterday's selling of Mitsubishi was a bit overdone, from what we know so far it's all very domestic, with no U.S. impact and no impact in Europe, and I think people are a bit hasty to cast this in the same light as the Volkswagen scandal. But of course the facts aren't all in yet, so it's hard to know for sure.
We've seen a bit of a leg down on the firmer yen, but the outcome of the BOJ meeting is basically what we've all been expecting, it is noteworthy that they've removed language saying that they might cut interest rates further if necessary, and that they've decided to exclude (money-reserve funds) from negative interest rates starting in May.
Confidence in the U.S. economy is just as important as geopolitical risk when it comes to thinking about risk aversion, and Wal-Mart's slide is significant in that it doesn't bode well for consumer spending in the U.S., it's effect on risk appetite may have been amplified by the fact that U.S. CPI figures due ahead of the weekend are expected by some to show contraction.
Whether or not it's mere sabre-rattling on North Korea's part the timing isn't great considering the current uncertainties in the geopolitical landscape, markets were already legging down on the Caixin services PMI, which showed deceleration in a growth sector. North Korea's provocation was just the cherry on top of a day when sentiment was already tarnished.
The markets are really hanging onto Janet Yellen's comments about a strengthening economy, particularly in big export countries like Japan, which relies on U.S. consumers to buy its goods, recently things have been hanging on liquidity expansion, which has nothing to do with the economy, so the fact that she's talking up the economy now is in a sense a return to normality.
It could be that we're seeing some restraint now because of sentiment surrounding expectations for the yen as we move into next year, gPIF (a government pension fund) came out and said they are re-instating hedging, which has some people wondering whether they are expecting to take further hits from yen strength in the future. We're also seeing some of the big brokerages marking up their cost projections for the yen moving into next year.
We're post 'Japan Inc' earnings now and the focus is back on China where local brokers are talking about market reforms, many of which will have a direct market impact,, there's also a continued focus on the U.S. Federal Reserve, with a lot of sell-side banter about quantifying what level of rate increases brokers are expecting. The shortened trading week should mean low volume with a very domestica focus, but the long-term outlook is still good for the Nikkei as long as the yen continues to weaken against the dollar.
U.S. dollar strength has buoyed sentiment and lots of exporters and big names in Japan are benefiting as investors chase that dollar strength and dollar asset exposure, taking a bit of wind out of small and mid-cap domestic shares, we've moved 500 points deeper into reaching 20,000, which would fill the gap from the August leg down.
The Japan Post IPO has performed as well as expected this morning and on top of that we've seen a real sentiment boost based on the monster rally in the U.S., some really nice corporate earnings have also helped us push through that 19,000-point resistance level, so the question now is whether we can reach the point where that becomes the support level.
Japan's market is so liquid and has been so well conditioned to handle bad news since QQE first began that, in a way, bad news is good news sometimes, we're also seeing some positive reaction in machinery and construction to supply-side priming coming out of China, and the auto sector is getting a boost after China auto sales came out positive yesterday.
There was a bit of concern because Premier Li recently made comments about the difficulty of achieving 7 percent GDP growth, which dampened sentiment ahead of the figures coming out, so people are quite pleased to see it beat estimates at 6.9 percent, these numbers are good for Japan, particularly for construction and possibly for related sectors with exposure in China.
We're seeing some buying from bargain hunters and a lot of important China-linked shares seem to be reacting positively to yesterday's move by the PBOC, in the short term it's hard to say whether this is real stability or just another bounce on the way there but the general sentiment is that the Nikkei is still where you want to be in the long term.
The sentiment on the street globally is that there's probably more upside in Japan as a regional market in terms of a short-term rebound, the markets are so desensitized now to additional easing or expansions of central bank activities that they're now looking for policy initiatives as the next market catalyst. And the market in the region that we believe has the highest probability for policy initiatives, aside from China, is Japan.