FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank
of Tokyo Mitsubishi UFJ notes that USD has regained some lost
ground overnight amid relatively quiet trading conditions.
He comments that the global equity market rallied sharply yesterday
by over 2%, reflecting investor relief that a fiscal cliff
agreement had been reached although upward momentum has faded in
the Asia trading session. The MSCI World equity index broke higher
yesterday reaching its highest level since May 2011. Hardman feels
that investor concerns will now likely switch to uncertainty
surrounding the raising of the US debt ceiling which will involve
another political battle over controlling public spending with
around USD110 billion of planned sequester cuts merely delayed for
two months.
He comments, "The policy uncertainty may help to dampen further
upside potential for risk assets and high beta currencies in the
coming months. Still improving economic fundamentals are proving
supportive with the global economy continuing to gradually regain
upward momentum. The slowdown in global trade since the middle of
2011 appears to be easing heading into 2013."
Looking to data, he notes that the latest ISM manufacturing and PMI
manufacturing surveys released in the US, UK, South Korea and
Taiwan yesterday all moved back into expansionary territory, above
the 50-level in December. The exception still being the Eurozone
where manufacturing confidence remained at contractionary levels in
December.
Nonetheless he believes that a gradual broad based pick up in
global manufacturing confidence is occurring as evident by the
release yesterday of the latest Markit/JPM Global Manufacturing PMI
survey which moved back into expansionary territory above the 50
level in December for the first time since May 2012. However, he
notes that at 50.2, global manufacturing confidence still remains
relatively subdued compared to a recent peak of 57.4 in February
2011 and an average in the three years to prior to the global
financial crisis of around 54.0.
Looking elsewhere, Hardman reminds us that the Japanese equity
market has not yet had the opportunity to react to the US fiscal
cliff agreement as they are closed until tomorrow. Japanese stocks
have outperformed since mid November benefiting from a weaker yen
and prospect of further monetary and fiscal stimulus. Hardman
finishes by writing, "Our long-term valuation model (see chart)
suggests that it is likely that USD/JPY has now bottomed with a
large degree of yen over valuation having already been erased as it
moves ever closer to the 90.00-level."