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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 18 April 2016 at 8:00 GMT

From the Floor: Bad news comes in threes for Japan

Head of Editorial Content / Saxo Bank
Denmark
  • Doha meeting a dud, crude prices tumble, risk-off returns
  • G20 finance ministers oppose JPY intervention: Horchani
  • Japanese earthquake hits Honda, Toyota, Sony stocks
  • Oil focus to return to slowing US production: Hansen

From the Floor
By Michael McKenna

One of the main factors impacting markets this morning is obviously the Doha summit's failure to reach a freeze deal between Opec and non-Opec producer-nations, but this and the consequent outbreak of risk-off sentiment are just one factor weighing on Japan.

The twin earthquakes that struck the Kyushu region of Japan on Thursday and Saturday have left the heavily industrial area in ruins and shuttered factories. Honda, Toyota, and Sony, reports Tareck Horchani from Saxo's Singapore trading desk, are just a few of the major firms affected with Sony shares plunging by nearly 8% at one point today.

It would appear that the "bad news comes in threes" element is alive and well for Japan following last week's indications from the group of G20 finance ministers assembled in Washington that no intervention will be forthcoming for the runaway yen.

According to US Treasury secretary Jack Lew, the surge in the JPY still apparently counts as "orderly", with Lew adding that Tokyo needs to focus on domestic demand.

The combined impact of the high-flying yen, the Kyushu quakes, and the plunge in crude oil, says Horchani, took the Nikkei 225 index 3.4% lower while the JPY gapped lower and kept falling towards the 108.00 handle today.

The equities plunge, adds Horchani, was mirrored across the Asia-Pacific region.

The JPY/Nikkei correlation pattern could indicate further downside for Japanese stocks:
Nikkei

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Source: Saxo Bank 

As for Doha, Saxo Bank head of commodities strategy Ole Hansen says that the summit – which he was not particularly sanguine about Friday – has cleared the way for the market's focus to return to falling US production as well as unpredictable supply disruptions.

Concerning the former, Hansen notes that lower prices will likely "speed up the rebalancing focus" for crude, and points to the $35-45/barrel price he cited in his Q2 forecast as very much still in play as markets recover from the Doha disappointment.

"In terms of levels, $39/b (Brent) is one to watch when looking for long liquidation, with the $35-39/b range representing a buying opportunity," says Hansen, adding that he does not expect $35/b to be reached in the short term.

Concerning the latter issue of supply disruptions, Hansen points to news out of Kuwait that a strike has removed one million barrels/day from the market – a factor that was not sufficient to break Brent's post-Doha fall, but may yet be adding some cushion.

Finally, Hansen points to the latest Commitment of Traders data, which show that silver may be vulnerable after a new record net long was reached last week, while bullish USD bets now sit at a two-year low.

Kuwait
Expect the Kuwait strike to gain some headline space if it 
outpaces the 'Doha failure' news cycle. Photo: iStock 

— Edited by Michael McKenna

Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

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