The trading landscape was dominated overnight and this morning by Japan’s shocking trade deficit which sent Asian shares into a death tailspin as investors and speculators once again questioned the wisdom of what’s become termed Abenomics. Devaluing yen dramatically has increased imports by twenty five percent, whilst exports have risen by fifteen percent in December 2013 compared to a year earlier. Japan reported a record annual trade deficit for last year as energy shipments and weakness in the yen increased the nation’s import bill. The deficit was 11.5 trillion yen ($113 billion), almost double the previous year’s 6.9 trillion yen, the finance ministry report showed in Tokyo today.
The ‘big idea’ behind the record rounds of quantitative easing the Japanese central bank have indulged in, was to encourage exports by way a cheaper yen, the unexpected consequence was increased imports. The only encouraging reason could be that manufacturers are very bullish and tooling up and readying themselves for the next round of exports, if Japan’s retail sales don’t increase by much in the latest data then that could be an explanation. But for now investors didn’t look too deeply into the reasons why and failed to look for any longer term joined up plan. The deficit number was shocking; therefore the Nikkei sold off by 2.51%.
The Ifo Business Climate for industry and trade in Germany improved for the third time in succession, the reading came out at 110.6. Assessments of the current business situation rose to their highest level since June 2012. Expectations regarding future business developments reached their most optimistic level in almost three years. The German economy made a promising start to the New Year. The business climate index in manufacturing continued to rise. Manufacturers assessed their current business situation far more favourably. Optimism about future business developments increased significantly, partly due to better exports.
Market snapshot at 9:45 am UK time
The ASX 200 closed down 0.42%, the CSI 300 closed down 1.33%, the Hang Seng closed down 2.11%, whilst the Nikkei closed down 2.51%. Asian stocks declined, with the region’s benchmark index heading for its steepest loss since June, as concerns that the global economic recovery is faltering, as evidenced by Japan’s record trade deficit, caused investors to sell riskier assets.
In Europe the main indices have opened in the red in this morning’s early trading. Euro STOXX is down 0.11%, CAC down 0.16%, DAX down 0.26% and the UK FTSE is down 1.13%. Looking towards New York’s open the DJIA equity index future is up 0.10%, the SPX future is up 0.31% whilst the NASDAQ future is up 0.19%.
NYMEX WTI oil is up 0.39% at $97.02 per barrel, NYMEX nat gas is up 4.13% at $5.40 per barrel, COMEX gold is up 0.38% at $1269.30 per ounce, with silver on COMEX up 0.81% at $20.92 per ounce.
The yen fell by 0.3 percent to 102.66 per dollar early in the London session after touching 101.77, the strongest since Dec. 6th. It rallied 2 percent last week. The currency weakened 0.3 percent to 140.45 per euro. Europe’s common currency was little changed at $1.3683.
The Aussie jumped 0.6 percent to 87.34 U.S. cents after falling to 86.60 on Jan. 24, the weakest since July 2010.
The pound gained 0.1 percent to 82.94 pence per euro early London time after depreciating 1.5 percent in the previous two days. Sterling rose 0.2 percent to $1.6511 after falling 0.9 percent on Jan. 24th, the steepest one-day decline since July 5th.
The pound has gained 9.1 percent in the past year, the best performer of 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro rose 5.8 percent and the dollar has gained 3.9 percent. The pound snapped a two-day drop versus the euro before a report tomorrow on the UK’s GDP that analysts think will show the U.K. economy expanded at a slower pace in the three months through December.
The U.S. 10-year yield rose two basis points, or 0.02 percentage point, to 2.73 percent early in London. The rate dropped to 2.70 percent on Jan. 24th, the lowest since Nov. 26th. The 2.75 percent note due November 2023 fell 5/32, or $1.56 per $1,000 face amount, to 100 5/32. Treasuries fell, pushing the 10-year yield up from near a two-month low, before the Federal Reserve begins a two-day meeting tomorrow and the U.S. sells a combined $111 billion of notes and floating-rate debt this week.
The government will offer $717 billion of notes and bonds in 2014 on a net basis, 14 percent less than last year, according to a survey of primary dealers, which are obligated to bid at Treasury auctions.