Volatility Continues As Rally Struggles On

The rollercoaster ride which has defined Asian, and in particular Japanese, markets has continued overnight, following a session that saw regional exchanges lose as much as 7% in value. This morning we have seen the Nikkei in Japan post a 2% rise, then a 3% fall and it has just closed 0.88% higher; who would be an equities trader.

The volatility is a mixture of three things. Firstly, we have seen a huge run for Japanese equities since Shinzo Abe came to power and promised to fight deflation with everything he could. It was natural that we would see a pullback sooner rather than later following 6 consecutive months of gains.

Market nerves have further been frayed by recent comments from central bankers that they may not be willing or able to add more stimulus to the pot. Recent communications from the Fed’s Bernanke and the BOJ’s Kuroda have definitely cooled expectations that were, earlier in the year, almost rabid.

The deterioration of global data through the past few weeks is the nagging background noise that has just reminded people that the asset bubble is exactly that, and not backed up by a sustained economic recovery.

Data from the Eurozone yesterday was better than expected with manufacturing and services PMIs from France, Germany and the Eurozone as a whole all beating expectations. They all remain deep in contractionary territory however, and further propagate the recessionary atmosphere in that part of the world.

UK GDP was confirmed at 0.3% for Q1 following yesterday’s opportunity for a reappraisal. Trade and inventory figures were revised higher while private consumption numbers went the other way; not a particularly strong mix to be honest. The sterling reaction was limited given the large fall-off seen after yesterday’s retail sales numbers but the pound still found itself lower against the euro.

Despite better than expected jobless claims, US PMI and new home sales dollar found itself a little in the crosshairs through the afternoon session. Losses were limited and you would have to say that we have not seen the top in things yet.

Today sees German IFO on the data calendar, with the market looking for a hold at 104.4 – the same level as last month’s surprisingly large fall. The key component will be the forward expectations part with German confidence getting weaker, the closer we get to the German election.