eToro
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Weekly Market Review 21-27/09/2015

Yen to Stage a Comeback?

Market players are likely to be considerably less stressed this week, now that the Federal Reserve has addressed the issue of rate hike timing. Of course, the Fed wasn’t the only central bank that held their policy meeting last week. Early last week, the Bank of Japan announced that its stimulus plans were going to be put on hold, for the time being, at least. Since the BOJ began easing, it has added some ¥80 trillion into the Japanese economy. Yet despite the BOJ’s efforts, as well as the fiscal policy efforts of the Japanese government, the economy is still floundering. Though very few expected the Bank of Japan to expand its stimulus program, equity markets were disappointed, nonetheless.

 

Is the BOJ Ignoring the Writing on the Wall?

In defense of the BOJ decision, the Bank of Japan’s governor, Haruhiko Kuroda, later spoke. The Governor said that the BOJ’s governing council felt that there were signs of moderate recovery which prompted their decision. What markets seem to be questioning are the numerous signs that suggest other than an improving economy. For example, Japan’s 2nd quarter GDP fell by 0.3% (quarter-over-quarter) while machinery orders failed to meet market expectations. Those declines are being attributed primarily to Japan’s growing weakness in exports, especially as they relate to China, Japan’s key trading partner. It is the next piece of key data that markets are going to focus on, specifically the core inflation rate. The Bank of Japan has set a target of 2%, and August’s CPI data will be released on Thursday. The question is will that outcome continue to support the Bank of Japan’s stance? One scenario is that Japan’s core CPI (which excludes food and energy components that are highly volatile) will heat up. In that case, it could turn the tide for Yen bets and push the Yen higher, especially against its weaker peers (i.e. the Euro and the Australian Dollar).

 

US Growth: How High Can It Go?

Also this week will be the 3rd estimate of US GDP data for the second quarter. In the 2nd release, real GDP grew to 3.7%. Markets are waiting to see whether or not this release will show that growth was upwardly revised. If it is, that would typically be good news for the US Dollar, and might benefit Wall Street, as well. What markets will want to see is whether the latest read of GDP will vindicate or else contradict the Fed’s policy decision.

 

Down to Business

After prolonged weakness, this could finally be the week of the Yen. Whether it is or not all depends on Thursday’s CPI release. If Japan’s personal inflation rate does creep higher, and given the risk averse environment that is dominating the financial markets, the Yen could be heading into a grace period. In the US, an upbeat reading for the 3rd estimate of GDP could provide support for the greenback and give a boost to Wall Street equities.

 

On the plate

US Durable Goods(Thursday) – If US Durable Goods excluding transport rise more than expected the Dollar could get a boost but US stock indices will benefit the most.

Japanese Inflation data(Friday) – If Japanese inflation crawls higher, it may ignite a rebound in the Yen especially vs the Euro and the Aussie.

US GDP Growth(Friday)- If the third release of US GDP for Q2 is revised higher that will benefit the dollar.

 

Chart of the Week

Nasdaq100_sep18

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