Saxo Bank | Jul 29, 2014 04:15AM ET
The geopolitical storm continues, though risky assets are surviving the headwinds with aplomb. Still, I have a hard time believing we can continue to sail on to new record highs as the conflicts over Ukraine and Gaza rage and as the Federal Reserve Bank taper continues. But so far, the Russian ruble and Russian equities seem to be the only assets taking a hit from the latest escalation in the hostility between the West and Russia and the threat of new sanctions in the wake of the downed commercial airliner. See Bloomberg story for more.
USDJPY crept higher overnight as global rates edged higher and as equity markets – particularly in Asia – came back higher after yesterday’s nervousness. The Chinese stock market is positively on fire (I wonder it this is due to the same reasons that the 1933 market in the US was on fire – due to fears of a massive devaluation leaving people desperate to own assets that will retain some degree of value – ie, not cash and increasingly not real estate as the latter is probably more widely being seen as potentially losing value. The data out of Japan overnight was mixed, with a sudden jump in the jobless rate and weak retail sales data offset slightly by better-than-expected overall household spending data and a small business confidence survey that continues to bounce strongly from the post-VAT hike plunge. There was also a report suggesting that job availability is at its highest level in a generation, so the jobless rate jump might be for the positive reason that more job seekers are actively seeking work and bumping up the participation rate. USDJPY
USDJPY has pulled higher, actually above the Ichimoku daily cloud level, but still not clear of the 200-day moving average a bit higher. This week’s close will be critical for the near term outlook. If yields head higher in the wake of tomorrow’s Federal Open Market Committee (FOMC) this is a USDJPY positive, but if the risk appetite response to the same development is negative, it’s a USDJPY negative. Eventually, the rate differential should mean the most.
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