Thursday December 21, 2006 - 11:08:10 GMT
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Black Swan Capital - www.blackswantrading.com
Another embrace of the carry trade?
â€˘ Japan's trade surplus hit 915.9bn yen in November, up 54% on a year ago. (BBC)
â€˘ Key Reports for Tuesday 19 Dec (WSJ):
8:30a.m. Initial Jobless Claims: For Dec 16 Wk. Expected: +15K. Previous: -20K.
8:30a.m. 3Q Final GDP. Expected: +2.2%. Previous: +2.2%.
8:30a.m. 3Q Corp. profits, final. Previous: +4.6%.
10:00a.m. Nov Chicago Fed Natl Activity Index. Previous: -0.31.
10:00a.m. Nov Conference Board Leading Indicators. Previous: +0.2%.
10:00a.m. DJ-BTMU Business Barometer: For Dec 9 Wk. Previous: +0.2%.
12:00p.m. Dec Philadelphia Fed Business Index. Previous: 5.1.
4:30p.m. Money Supply. Previous: 5.1.
â€śA man always has two reasons for doing anything: a good reason and the real reason.â€ť
FX Trading â€“ Another embrace of the carry-trade?
It may not feel like our good buddy was gone for very long (if at all), but the yen carry-trade looks like its opening its arms for a holiday embrace.
The Bank of Japan left its benchmark interest rates pat at 0.25%. Then the Japanese Central Bankâ€™s main man spoke of â€śweakâ€ť consumer prices and spending. This should come as no shocker since the Japanese are notorious for their saving habits. But the fact is, Japanâ€™s tightening cycle is going nowhere fast. Less than adequate data has got the BOJ looking awfully â€śturtle dovish.â€ť
Considering the yield differential, and the potential for it to widen further in early â€™07 now that the ECB is in hiking gear, itâ€™s probably no surprise to see the yen drop to an all-time low against the euro and a nine-year low against the Aussie. After all, Australiaâ€™s key interest rate is a whopping six percent points higher than the zero-point-two-five that Japan is sporting. It begs the question: Why are we working for a living instead of borrowing truckloads of yen, reinvesting in those safe stable high-yielding â€śother investmentsâ€ť and clipping coupons while sipping pina coladas on the beach? I guess we are jaundiced with our risk-reward outlook, which basically says: When it looks that easy, itâ€™s never that easy!
CHART EURJPY and AUDJPY
Thinking of the things this coming season that could change the carry-trade dynamics, we get three:
1) Surprise growth in Japan and BOJ aggressiveness
2) Rising volatility in currencies across the board
3) Global market risk based on a major meltdown (hedge fund, contagion, etc.)
Stay tuned! Because as Yogi warns us, â€śIt ainâ€™t over till its over.â€ť
John Ross Crooks III, Black Swan Capital
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