Yen Is Weakning Against The US Dollar

Yen is trading at 117.20 against the US dollar after showing considerable strength in the month of August when subprime mortgage mess unfolded in the US and yen carry trade unwinding started. It seems at around 113 levels, lot of carry trade happened as japanese central bank doesn't increased it's benchmark interest rate and japanese as well as oversees investors/hedge funds/PE funds still wanting to have a pie of cheap funds available in yen currency, have them invested in riskier yet high yield assets of emerging economies lke India, China, HongKong, Taiwan, Russia. This is causing tremendous price rises in these assets and thus is a cause of concern in the short term.

Case For Renewed Yen Carry Trade To Resume

After japanese central bank refused to increase the interest rates and with yen strenghtening against the dollar and risk perception of japanese investor/saver on an increase due to lack of investment oppurtunities in their own country, yen carry trade will begin to find favour among large investment banks and hedge funds. This will further give a boost to already over heated stock markets like India and other fast growing asian economies.

Greed

Greed was the sole reason why subprime mortgage mess ocurred in the US. Big financial institutions, hedge funds, gave credit to people having low credit score in order to earn more returns and thus in the process inviting more risk to their credit exposure. This is precisely what happened and happened with vengence, hitting stocks especially financial stocks across the globe! Credit risk containment measurements needs an overhauling before anything happens again in the credit markets.

Markets Fall Again

Markets have now again started showing signs of weakness with Dow Jones falling 280 points in yesterdays trading session with renewed fears of sub-prime mortgage defaults and bankruptcy among large hedge funds and financial institutions, also aiding the fall is low consumer confidence among U.S.consumers.
Asian stocks are also trading lower on the back of weak signals from U.S. markets. U.S.Fed now has to take several rate cuts this year so as to restore market and consumer confidence.
It seems worst hasn't come out from U.S.sub-prime mortage mess. And till then stocks will be hugely volatile. This credit crack can have potentially a drag on world economic growth which so far has been very good.
Uncertainty will prevail till then in the financial markets.
Buying in sharp falls in sectors and stocks with the strongest of business fundamentals will pay eventually. Yen is gaining strength against the dollar and is trading at 114 against it, it seems the yen carry trade un-winding is still underway and thus causing volatility in the financial system.

Much Needed Bounce Back In Markets

Today stock markets bounced back after several days of sharp falls and closed pretty smartly anywhere between 3 to 5% up. Yen also is trading close to 115 levels against the U.S.Dollar. It's very difficult to ascertain the exact extent to which credit markets have been affected due to sub-prime mortgage mess and subsuquent defaults and several funds going burst due to this, one thing is sure that risk appetite of investors/traders has taken a severe beating and it will take a while before they can regain their confidence. It will be worthwhile to watch how markets do for the next few days before making a big financial commitment in the markets.

Yen Carry Trade Unwinding

For two days running, stocks across the world are bearing the brunt of a credit crack that first started in U.S. sub-prime market and now has spread to other credit instruments. This collateral damage has prompted hedge funds, PE funds, large financial institutions to pay back the capital that they have borrowed from Japan very cheaply. With the losses mounting on their mortgage books, they will now have to withdraw from risky assets like stocks and return the borrowed money and this is causing Yen to strenghten against the Dollar, now trading at 114.32 after touching a high of 113.55 against the Dollar. Serious downward stock price adjustments had happened in the last few days, dow jones has re-traced all the gains it had made during this fiscal year and all other emerging markets are also follwoing the suit. For the first time in the last four years, serious credit squeeze is happening and this is not good for assets like stocks. Only selective buying can be made in stocks which are having the strongest of fundamentals and business momentum. Commodities are also correcting and this is good news for commodity user industry and hence to some extent for Inflation.

Central Banks Pour The Money

Seeing liquidity crunch because of sub-prime mess in the U.S., central banks of major economies are pouring huge money in the financial system.
Several leading funds of major investment banks and institutions have been closed due to losses that they have incured in sub-prime investments in the U.S.
Yen has been strengthning for the past few days and this is also a cause of concern, critical level to watch out for yen against dollar is 115. This is very important from the yen carry trade point of view as it has in the past and in present providing huge liquidity to the financial markets.
It will also be very interesting to see if Japanese central bank raises the interest rates this time or not, again very important for yen carry trade to keep going.

Dow Jones is Down Again Sharply

On August 03,2007 Dow jones fell sharply again by 280 points, thus retracing all the past few days gain in one trading session indicating that worst is not yet over for global equity markets.
To tread cautiously is the name of the game.
Watching carefully the Credit Market in the U.S. will be extremely useful in knowing future course of action by big players like Investment banks, Pension funds, Mutual funds, PE firms, Insurance companies, Hedge funds etc, in the financial markets.

Credit Cycle

We should ask ourselves one extremely important fundamental question i.e., whether Credit cycle that has fuelled spectacular price inflation across the asset class has cracking or not before we raise doubts about continuation of bull run in stocks, commodities, properties.
I say in some segments of U.S. subprime mortgage market, it is showing signs of troule with many borrowers defaulting on their credit liability, and hedge funds along with large investment banks who love to buy these certificates are facing problems. Thats adding volatility in currency and stock markets because they pull back money from other assets like stocks if they face turbulance in holdings of their other invesments like subprime mortgage certificates. Volatility is the name of the game for some time now.

Volatility In Stock Markets

For some days, stock markets across the world are facing volatility due to subprime mortgage problems in the U.S., yen carry trade un-winding because of strenghting of yen against the dollar, re-adjustment of risk due to sharp rise in the price of crude oil which is hovering above U.S.$75 mark for the past 2 weeks. Hedge funds which love to play the stock and currency markets with leveraged money are facing problems due to adverse movements in certain asset prices against their bet, this is also leading to volatility in the system.