To continue my recap of the last week, here’s the added information of the Japanese markets.
The title comes from one stupid index construction – due to price-weighting – used as a bench mark (the Nikkei 225) going higher than another (the Dow Jones Industrial Average) for the first time in a very long time! Depending on how you count it this happened during the late Asian hours on Thursday (when the Nikkei futures traded higher than the DJIA closing price) or on the respective time on Friday when the US employment data had a much bigger effect on Nikkei futures than on the DJIA, thanks to the yen push factor and better expectations of increased exports from Japan to the US.
On top of this, Abe Shinzo will look to go into the second and last week of election campaigning this week, against a still completely disoriented opposition. He will go into this on Monday with GDP revision numbers coming out, with Bloomberg forecasts of a Q3 revision to -0.6% from a -1.6% headline numbers. Bank lending and current account numbers will all be out at the same time tomorrow morning (08:50 Japan Standard Time, or 23:50 today, GMT) 40 minutes before the Japanese markets open. I’ll go over a bit more of what the markets might see in terms of data before the election, after I give you a technical outlook on the Japanese markets in general.
Nikkei 225:
Nikkei Stock Average, 4-hour candles, futures-implied spot, chart courtesy of CMC Markets.
Here, we have a strong momentum play from the last steep trend line, looking to replicate the latter half of October’s trading in terms of points on that parallel line, and a “match” would imply that the rest of the week will hold positive momentum. As I have argued previously, I do think the market will be in wait a bit more for the election, waiting to take positions until after the dust has settled on and markets have opened on Monday December 15th, but the 48/120 hour EMAs plus breaking the upwards trend channel and holding it for more than 8 hours (which is a first!) will undoubtedly provide more momentum. “Following the line” would set an end-week price of roughly 19 000, so that would be interesting to see if it plays out.
If 12 hours pass of neutral trading, then the 48 hour EMA and the trend line will really start lending support to price, so this could be interesting to watch. Then, will we get any help from elsewhere?
USD/JPY:
USD/JPY, 4 hour candles, chart courtesy of CMC Markets.
The Nikkei does have some catching up to do against the dollar after the employment numbers came out! There’s nearly a 1.5% reaction to the effect of the employment numbers, plus bouncing off the trend channel top, and getting support by the 48 hour EMA. Momentum indicators on the bottom are also indicating strong momentum, but the distance to the established price action is so far that there is the possibility of giving away the majority of those gains again. I also personally believe that the 121.85 level will prove very difficult to cross, given that the other Fibonacci levels from the 2002-2004 USD/JPY downwards move have proven very resilient. If this is broken though, it sets up tests at peaks near 124.14, and 125.60. Given the previous market action around these levels giving initial breaks that are retreated on, a break should probably only be called after 24 hours of continuous trading above the 121.85 line.
I find this to be difficult to support, as good as the US employment data might have been, I think the best that will happen is a quick break above that gets reversed, unless the majority of a Japanese trading day trades price higher after crossing.
Time for looking at what data Japan will look into next week then! This, as always, after the jump!
Data releases:
- 8th of December, 08:50 JST – Bank lending, and current account balance.
- 8th of December, 08:50 JST – GDP 2014 Q3 revisions. External demand, private consumption, and overall data, annualized and QoQ numbers.
- 8th of December, 14:00 JST – Economy watchers survey.
- 10th of December, 08:50 JST – Business confidence, and corporate goods price index.
- 11th of December, 08:50 JST – Machinery orders, and capital flows data.
- 12th of December, 08:50 JST – Industrial production (factory output ratios and industrial output revisions).
The current account balance will be really interesting to see, since this is October data and the trade balance has been much more positive than expected in September and August. It’s the last month before the BOJ action really hit the yen, but the yen was falling relatively consistently in September and did a V during October! My guess is for about 1.2 trillion yen in current account, beating the September figure by about 250 billion yen. Any beat will probably be yen-negative.
GDP revisions will however be the really, really big thing. Will GDP be revised much higher after the capex numbers? How will the individual components look? Does this mean that Japan is currently in a sweet spot of increasing hiring, ultra-easy monetary policy and much more corporate investments? It’ll require some clearer readings of tomorrow’s data before I call it, but it does have the potential if GDP goes above a -0.5% reading and private consumption surprising positively will probably have an outsize effect. This could set the tone for the week’s election debate and campaigning, where good numbers will speak vastly in favour of Abe and his economic policies.
Business confidence will be worth watching, but probably won’t me a major kicker, while the machinery orders is an important-enough leading indicator that it might allow some shifts in exports down the line, although I don’t expect it to move any election data around. The discussion that follows is important, although tangential to Japan.
China will however release trade balance data for November tomorrow at 11:00 JST (10:00 China Sandard Time) and I expect it to be rather firmly up as the export/import mix of China means exporting to the US, where the dollar rose, and importing from countries which have seen their currencies fall (Japan, Korea, Australia, Germany, Brazil). As China hasn’t started importing things before the Chinese New Year (that normally happens in December and January) their economy should still be in full swing and anything less than US$60 billion would be a massive problem for China. Here’s how: since exports are mostly dollars, the import prices will be the only moving prices, and 1% of price fall in that on a MoM basis would lower imports by US$16 billion.
The euro fell by about 2%, the yen by about 6%, won by 3.5%, Aussie by about 2%, and real by 2.5% on MoM average basis. Assuming that a large part of Australian and Brazilian imports are commodities, November commodity price falls will more than offset any price increases that other markets have passed on. Based on these figures alone, anything less than US$70 billion in trade surplus is a disappointment, and since consumer demand is picking up in the US, there could really be an US$80 billion trade surplus from China from those factors. It might have missed some smoothing factors, and since numbers tend to be “sticky” and adjusted, I will stick to a US$60 billion trade surplus call, with a reservation on the upside given the better payrolls data for November from the US, and consumer confidence and chain store sales also perking up.
Any good data out of China will probably bring good cause for Japanese exporters to cheer, as they can probably see increased export prices in yen to China during the month of December, when China imports the most goods. The major effect of this will however be to reinforce the post non-farm payrolls number trade in China, which already has ludicrous momentum.
