Japan’s Global Impact
Economic data out today from the world’s second-largest
economy rekindled worries about a global slowdown and sent traders scrambling to
snap up assets deemed the best of unsatisfactory alternatives, US Treasuries and
dollars.Â
Government officials today said the Japanese economy
unexpectedly contracted in the first quarter, prompting speculation that Japan
will fall into recession for the fourth time in 10 years. A recession occurs
when economic growth is negative for two consecutive quarters. The discouraging
news prompted traders to take a look at the larger economic picture and refocus
attention on a theme that was the focal point earlier this year: a global
recession.
With the US in a “manufacturing recession”
where industrial production has suffered two consecutive quarters of negative
growth and Europe continuing to hand in worrying economic performance data,
weakness in Japan sent traders scrambling to the perceived safety of dollars and
T-bonds. The US, Europe and Japan account for nearly 75% of global GDP.Â
June dollar index futures
(
DXM1 |
Quote |
Chart |
News |
PowerRating) rallied to their highest level
since 1986, adding .85 to a contract high of 120.12. Although the DXM1 slipped
from the Momentum-5
List over the weekend, the contract has been on the list since May 24.Â
After failing to hold the .8430 area of their prior
expansion thrust, Japanese yen
(
JYM1 |
Quote |
Chart |
News |
PowerRating) broke down to make good on an Off The Blocks
setup off its
New 10-Day Low reading. The yen closed .0065 lower at .8208. The
fundamental reason underpinning the yen’s recent ascent was optimism over
possible reform measures expected to be implemented by the new Japanese Prime
Minister Koizumi. Today’s report shows traders are emphasizing economic
fundamentals and that the honeymoon is over for Koizumi.
Euro FX futures
(
ECM1 |
Quote |
Chart |
News |
PowerRating) are down on news that
Europe’s economy slowed more than expected as well. The euro FX continued
accelerating below a Pullback From Lows
trigger to end down .00740 at .84370.
Also from the Implosion-5 List,
Swiss francs
(
SFM1 |
Quote |
Chart |
News |
PowerRating) traded on their lows of the year and made good
on a Pullback From Lows
setup. The Swiss economy is predicted to contract to about a 1.8% annual growth
rate and the Swiss Central Bank is widely expected to cut rates by
25 basis points this Thursday at its monetary policy meeting.Â
The leading contract on the
Implosion-5 List,
the British pound
(
BPM1 |
Quote |
Chart |
News |
PowerRating), sank to a new 15-year low, falling in
tandem with continental currency futures. A report out today showed producer
prices in the UK rose at their fastest pace in seven months, which crimps the
Bank of England’s maneuvering room to cut interest rates to stimulate the
economy. Perhaps more importantly, the reality that the UK might join the
12-nation, single-currency euro bloc became more real as the BOE released a
report predicting the country could start using the currency much sooner than
originally forecast. The view here is that the euro will have to fall in value
before entry into the currency bloc will occur.
Traders eyed a slumping stock market and the global economy
and fled to the perceived relative safety of government debt.
September T-bonds
(
USU1 |
Quote |
Chart |
News |
PowerRating) rallied after hitting a new 10-day high
two days ago. As it has in the past, the Fed could take even more aggressive
action in cutting rates to stymie global economic stagnation. T-bonds closed
18/32 higher at 100 26/32.Â
News wires reported that the man who was once the largest trader in the
bond pit may soon return to the floor of the Chicago Board of trade. Tom Baldwin
mentioned he liked trading bonds in the pit during times of inflation. Baldwin
was reputed to trade notional values up to $2 billion per day, transacting
20,000 contracts or 5% of the pit’s daily volume in his heyday.
Nasdaq 100 futures
(
NDU1 |
Quote |
Chart |
News |
PowerRating) gapped lower, opening and making good on
their Pullback From Lows
trigger. Stock index futures hinted they could fall by signaling down CHADTP and TRIN Thrust
readings from the
Market
Bias Indicators Page.Â
The leading contract on the Momentum-5
List,
August lean hogs
(
LHQ1 |
Quote |
Chart |
News |
PowerRating), lapped open to a new contract high and
have returned to opening levels after filling the morning gap.