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Abe Resigns; Are US Stocks About to Drop?

Market Drivers August 28, 2020

  • Abe resigns send USDJY lower
  • Other assets unmoved
  • Nikkei -1.41% Dax -0.44%
  • UST 10Y 0.74
  • Oil $43
  • Gold $1951/oz
  • BTCUSD $1447/oz

Asia and the EU

  • No Data

North America Open

  • CAD GDP 8:30
  • USD PS/PI 8:30
  • USD Chicago PMI 9;45

A surprising announcement from Prime Minister Abe that he is resigning due to health concerns sent Japanese markets into a tailspin with Nikkei down by -1.41% and USDJPY down by more than 85 pips.

Mr. Abe who has been Japan’s longest-serving Prime Minister stated that he will appoint an interim Prime Minister until his successor is chosen. The news sent Japanese markets lower and send yen higher as investors tried to grapple with the uncertainty, but it is unclear just how much of an impact his departure will have on Japanese policy. Mr. Abe’s party is a center-right party that has been generally a strong ally of the US and the neo-liberal order.

The impact of Mr. Abe’s departure would be far greater if it led to a shift in the Japanese political landscape to the left. For now, continuity will likely reign, and tonight’s reaction to the news is likely to be a one-off event.

Although risk assets elsewhere remained steady in quiet overnight trade there is some evidence that the rally in stocks is getting tired. Specifically, the Nasdaq which has been the prime leader of the move higher has been underperforming the other indices all week and the index remains choppy in overnight trade.

With RNC over and the Hurricane Laura having passed through the Gulf there is little newsflow to drive trade today. On the eco calendar, the market will only see the Personal income and spending numbers and Chicago PMI data. With so much positive news priced into equities, any downside surprise in the data could provide the catalysts for some profit-taking. The Nasdaq appears to have found resistance at the 12,000 level and if it can’t hold that figure as the day proceeds profit-taking could accelerate into the close.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Boris Schlossberg

Mr. Schlossberg is a regular contributor to CNBC's Squawk Box and a commentator for CNBC Asia and CNBC Europe. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Mr. Schlossberg has written for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is the author of Technical Analysis of the Currency Market and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game, both of which are published by Wiley

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