Let’s talk about three subjects,
disconnected correlation between EUR and oil price, today’s tumbled Chinese
equity market (black Monday?), and heavily stocked long position of foreign
investors for KTB futures in both of 3yr and 10yr.
First, we saw the disconnected correlation
between EUR and commodities price last week. What is implied in this? I
understand this just as the volatility. EUR/USD faces the convergence of all of
moving average, so it could be connected to too high volatility soon. Last week’s
strengthen EUR would be in line with this volatility, I think. Dropped
commodities price seemed somewhat odd as not only EUR appreciated against USD,
but also BDI was high last week. Someone said this divergence could mean that
market starts to focus on the economic fundamental, not on the monetary policy
further. Combination of depreciated EUR and plunged oil price was driven by the
power of some governments such as US and Euro area, he thinks. But for now,
market recognizes these themes as be separated from each other under he argues.
It’s possible, surely. But, I think this analysis seems somewhat hasty, because
we experienced this only for one week under the recent market has moved with
big volatility. I maintain my view that EUR would go to strengthen versus USD
with improvements in Euro area’s economies and possible diminishing importance
about ECB’s QE in 2H this year. And this would lead commodities price to be
pushed higher at last in line with global economic rebound. Until then, all of
markets would move with huge volatilities, I expect.
Second, Chinese equity market, especially
in Shanghai market contracted rapidly by -8.5%, so someone called this black
Monday. It’s somewhat regretful because today is the day that our project team
about Chinese equity market published the material about the forecast of equity
market and economic influences and would announce in the team meeting. We
expected the movement in Chinese equity market and economic impact would be
moderate under restricted negative wealth effect and willingness of control by
government. But, the market is not easy. Anyway, we would face the headwind
that global economy could be in downside risk with deflationary pressure in
line with dropping commodities price. Recent adjustment in US equity market is
affected by the expectation that 3Q would be hard to gain further earnings than
2Q that was showed firm or solid earnings. And on the economic fundamentals, it
would be same. Under subdued inflation in 3Q, and with Chinese equity’s
uncertainty, global players would want to see the world as the fear of
deflation. Maybe they would be pleasure in 3Q, but their gain would be very
restricted, I guess, because the big picture already is drawn on the opposite side.
As someone argued, Fed seems afraid of 1966’s case which former Fed missed to
start tightening policy. At that time, the projections about inflation failed
to forecast the trajectory of CPI and wages. That said, the inflation could not
move toward on linear path, if it starts to move. We would face the
inflationary pressure soon, maybe in 4Q this year, I expect.
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