USA equities rise for sixth week, as markets appear to be immune to any negative hard data, yen rises as Abe appears on target to win Japan’s election with increased majority

Oct 23 • Morning Roll Call • 2061 Views • Comments Off on USA equities rise for sixth week, as markets appear to be immune to any negative hard data, yen rises as Abe appears on target to win Japan’s election with increased majority

The continual, gravity defying, record rises in the main equity markets in the USA, comes at a time when older heads are remembering the thirty year Black Monday anniversary, 19th October 1987, when markets in the USA fell by up to 23% in a day. In today’s era, when if the markets fall by 2% over two days, analysts act as if the sky has fallen down, it’s all too easy to forget the impact of such incredible one day falls.

As the NASDAQ is now over the pre dot com crash levels, it’s worth remembering that the dot com tech share recovery took close on a generation; fifteen years to complete. The NASDAQ index rose from 1000 to 5048, from 1995 to 2001. And after the collapse (which began in 2001), it then took fifteen years, to early 2016, to once again surpass its 2001 peak. It must also be noted that the complete fall took up to two years and it wasn’t a straight line fall. There were: peaks, plateaus, troughs, and mini recoveries, but eventually (by 2003) the NASDAQ nearly gave up all its gains; from 1000, up to just over 5000, back down to just over 1000. During that crash trillions of dollar losses were accumulated.

We should never be complacent, we should never take our eye off the ball, we should always remain both vigilant and humble, whilst expecting that at some time black swans, such as the dot com crash, or the subprime induced crash of 2007-2008, will hit our markets and by their definition you’ll never spot them, historically experts never have. Fortunately, for us primarily FX traders, who know how to short and how to go long, market corrections, or crashes represent opportunities, as the volatility increases exponentially. However, during such times we all become concerned over far more practical issues, as many investors found when their banks closed in the USA and the U.K., or when the bail ins happened in Greece and Cyprus.

Monday is a relatively quiet day for high impact news events; in terms of European economic calendar news the Swiss weekly sight deposits data can move markets, if the results shock markets, whilst the consumer confidence reading of -1.2 in September is forecast to recover moderately to -1.1 for October. The Eurozone govt. debt v GDP ratio at 89.2% will be monitored for any sense of deterioration, given the ECB wants to taper its current €60b a month Q.E. program and potentially raise rates in 2018, Germany’s Bundesbank will publish its monthly report. In the U.K. a trade body the CBI will deliver its business orders, sales prices and orders, coming after recent disappointing retail figures analysts will monitor this publication carefully.

The U.K. pound came under pressure last week until the E.U. offered various olive branches to prime minister Theresa May, in the form of a commitment to begin to prepare the ground for a trade agreement, if the outstanding issues of: movement, exit cost settlement, the Irish border and E.U. citizens’ rights of stay are agreed. The pound staged a recovery once conciliatory announcements were made on Friday, albeit the recovery was modest.

Yen rose versus its peers as markets opened on Sunday evening, as a consequence of Prime Minister Abe winning the snap election he decided to call. In early polling results, it would appear that his Liberal Democrat party had secured over two thirds of seats, which would enable him to overturn Japan’s article nine pacifism policy in their constitution and tackle what Japan perceive to be the threat of North Korea.

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