Rudderless markets again this week

With the plethora of event and data risk this week, ranging from central bank policies and geopolitical to commodities and currencies, investors are understandably cautious about making fresh directional bias. But that has not stopped traders from placing intraday bets.

Data displayed on screens
Source: Boloomberg

In Japan, the strong correlation between the Nikkei and the Japanese Yen continued to hold today.

The USD/JPY decline during the overnight session, after making a 13-year high, signalled to the Japanese equity bulls that some trimming of longs is in order.

That’s what happened today. The Nikkei 225 fell for the second day as the market perceived a stronger Yen to be a dampener for Japanese multinationals, particularly exporters.

The pullback also came on the back of a 12-day rally in the Japanese stock market. While the Japanese authorities are generally comfortable with a weaker yen, it voiced concerns on the rapid pace of depreciation seen recently.

USD/JPY surged 4.5% in a two-week period between Monday 18 May 2015 and Tuesday 2 June 2015. Bank of Japan (BOJ) governor Kuroda reiterated on Tuesday a stable exchange rate that reflects a nation’s economic fundamentals is desirable.

The Ministry of Finance is also closely watching movements in the currency markets. Former vice finance minister, Eisuke Sakakirbara, also known as Mr Yen, expects Japanese officials to intervene if JPY weakened below 130. However, I doubt the authorities have the firepower to slow the Yen descent given that BOJ continues to maintain its massive ¥80 trillion QQE programme.

In addition, the dollar should strengthen further when the Fed finally increases the Fed Funds rate, which will make the task even more difficult. In the medium term, the current pause in the Nikkei is likely to be just a pause.

China rebound may have lost steam today amid rising volatility as investors lack the conviction to push higher. The Shanghai Composite Index (SHCOMP) ended flat ahead of the formidable 5000 barrier. The CSI 300 Index shaved 0.3% off despite modest gains in the Shenzhen Composite.

ChiNext continued to march higher, advancing 1.1% to clock another record high, although they may face some resistances the around key 4500 level. The 100-day volatility index has climbed to the highest level in over five years, at 32.0.

Despite news of a tighter margin lending, the amount of outstanding margin debt on the Shanghai Stock Exchange continues to rise, heading to a record CNY 1.39 trillion (USD 224.3 billion) on Tuesday. Meanwhile, retail investors opened a record 4.44 million new A-shares accounts last week, bringing the year-to-date total to 33 million, which is more than the combined total in the last four years!

STI given some relief

Singtel was the most active share today with 77.5 million units changing hands, the highest volume in over two-and-half years since 26 September 2012.  The stock price rebounded strongly to SGD 4.06, recovering above the 200-day moving average, as bargain hunters swooped in to buy the counter after it tumbled 3.6% yesterday, to close at a four-month low.

Noble on the other hand, continues to be deluged by sellers, falling by 3.4%, slipping towards SGD 0.70. The stock has already fallen 36% since the start of the year, extending the decline since it started in June 2014.

The Straits Times Index was provided some relief as the Index was held up by the rebound in bank counters as well as Singtel shares, although decline in the industrial sector, including Jardine companies and Hongkong Land, stymied upsides.

There seemed to be a fair bit of movement in the smaller-cap stocks. Although trading value in STI accounted for 76% of aggregate value in Singapore equities, trading volume was only a quarter of the total.

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