03 August 2016 at 8:50 GMT
By Clemens Bomsdorf
Japan is once again driving markets. Movements in its government bonds, triggered by poorly received Bank of Japan and government stimulus efforts, are impacting world markets and we could see a repetition of April 2015's “bunds hiccup”, says Saxo Bank's Asia macro strategist Kay van-Petersen
On July 29, the Bank of Japan
disappointed markets and spiked the yen higher. It fell further yesterday and Japanese government bonds tightened from minus 0.30 to minus 0.08 basis points. Additionally, rumours of a potential government bonds issue of with a volume of 100bn JPY
and maturity of 40 years are adding to this and we see Japanese and German
10-year government bonds now very close with the latter yielding minus 0.029 with the former at minus 0.082.
Van-Petersen strongly feels that “USDJPY
will soon break 100, with a positive NFP being the only near-term event to stem the tide of yen strengthening,” as he puts it.
There was a hiccup in German bunds in April 2015, and we see a similar movement now:
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“We have seen an extremely fragile European banking system,” says Garnry, adding that sentiment needs to improve otherwise “we could risk panic”. There is not much trust afoot in the European financial sector and the stress tests did not change this.
It looks different in the US, where Garnry sees AIG
as a strong buy. Its quarterly earnings beat market expectations, as foreseen by Garnry, and the company’s turnaround is still on track. AIG is getting rid of non-core assets and is confident that its dividend can be raised significantly over the coming years.
When it comes to Tesla
, Garnry is short ahead of Q2 earnings. “Its shares have been surprisingly robust,” he says, adding that he sees great risk on delivery execution.
On bonds Simon Fasdal, head of Saxo's fixed income desk,
says that global core yields are on the rise on concerns that central banks will begin to downscale their quantitative easing programmes. Currently, he notes that equities and bonds are both heading lower, meaning that central banks are still the decisive factor.
German bunds opened below 166.50 and then went a bit higher; yields are now minus 0.02 and quickly approaching positive territory again.
price slid back to below $40/barrel and if it continues to fall there is a risk "that oil-dependent economies such as Russia
and the energy sector will be clearly negatively impacted," says Fasdal, adding that the low oil price also keeps global core yields low for now
Tesla cars still look great, but Saxo's Peter Garnry is not that positive
when it comes to the company's prospects. Photo: iStock
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