Japanese equities drop on valuation concerns

Tuesday, January 14, 2014

Japanese equity indices fell significantly lower in overnight trading after investors, returning to the market after the long weekend, sold off holdings in response to Friday’s weaker than expected non-farm payrolls figures. The Nikkei struggled from the outset, trading under pressure throughout the session as it eventually closed 3.08% lower while the TOPIX lost 2.26% during overnight trading. Chinese markets fared better on Tuesday with the CSI 300 and Shanghai Composite adding 0.87% and 0.86% respectively. The lack of major economic data releases yesterday had many participants struggling for direction and while there was no major catalyst for the selloff in Japanese markets, risk averse investors have supported the yen higher in recent sessions which has weighed heavily on equities, particularly export stocks.

Wall Street echoed the Asian session’s sentiment, closing lower as investor concerns regarding stock market valuation prompt a sell-off. Both the S&P 500 and DJIA struggled to break into positive territory yesterday, spending the majority of the day under pressure as they eventually closing 1.26% and 1.09% lower, the largest one day declines for the S&P 500 and DJIA since November and September respectively. Yesterday’s selloff marks the fourth straight session of declines for the DJIA as it pulled back to levels last seen on 23rd December and despite an optimistic investor sentiment currently dominating the market, participants are concerned that valuations are entering overbought territory.

Gold traded towards a one month high yesterday, building on support at the 50 day MA as the recent cautiousness in risk assets supported demand for the yellow metal. Spot prices have since built on the recent rally which has seen prices rise almost 4.5% since the start of the year as levels seem well supported above $1,250 this morning.

The US Fed is considering taking further action to limit banks’ activities in physical commodities as pressure from congress steps up. According to Bloomberg, then central bank is exploring ways to curb ownership and trading of some commodities as it attempts to cut the risk for deposit taking institutions. The outcome may build on comments made in July where the Fed stated that is may reconsider its 2003 decision to allow some lenders permission to expand into raw materials. A senate banking subcommittee hearing on the topic is scheduled for tomorrow.

 Yen strengthens, hampering exporters as investors err on the side of caution

JPY Curncy Japanese Yen Spot 3 2014 01 14 07 35 04

Gold prices continue to recover as US markets drop

XAU Curncy Gold Spot Oz 2014 01 14 07 58 05


Events for today: Tuesday, 14 January 2014

0800

DE

12M

GDP Annual

0930

UK

Dec

CPI & RPI

0930

UK

Dec

PPI Core Output

1330

US

Dec

Import/ Export Prices

1330

US

Dec

Retail Sales

1500

US

Nov

Business Inventories

All times UK Local Time

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