In the first clip, Naomi Fink,
CEO of Europacifica Consulting, tells CNBC that Bank of Japan policy has been boosting asset valuations, weakening the yen, and boosting inflation in an effort to recapture “lost decades” of growth.
However, she thinks BOJ minutes indicate reluctance to add more monetary fuel in July because the BOJ has been buying so many bonds that there is fear the market could become illiquid, and BOJ “doesn’t want to waste firepower if it doesn’t have to.”
An interviewer asked for Fink’s reaction to a prediction by Ray Barros that the yen will likely go to 122 to the dollar. Fink responded that, from a fundamental standpoint, she doesn’t expect to see “runaway” weakness in the yen without runaway inflation. She mentioned in passing that she expects the Federal Reserve to move to withdraw monetary stimulus before the BOJ does.
Next, Emma Lawson,
Senior Currency Strategist at National Australia Bank, observed that strength in the European equity markets on the expectation of a deal for Greece is the “strongest factor” in weakness for the euro. The interviewer asked what remarks from Jerome Powell, a governor of the Federal Reserve who is a “known centrist,” suggesting that the Fed is likely to raise interest rates in both September and December, mean for the dollar. Fink responded that these comments “remind the market that the U.S. economy is stronger and the dollar is back on track for a rally.”
An interviewer repeated the prediction by technical analyst Ray Barros that the yen will go to 122, which would go contrary to a dollar rally. Fink responded that she looks at higher bond yields as indicating a stronger dollar. A followup question suggested that the expectation that a rate increase will be gradual predicts a relatively flat yield curve. Fink envisions a “very difficult process” and thinks the Fed fears another “taper tantrum” and this calls for a “gentle” increase in rates, with the yield curve steepening until later and enabling the “carry trade.”
This writer notes that other analysts are less convinced that the U.S. economy will strengthen in the fall. The IMF is also in this camp and has called for caution in raising rates, with Chair Yellen, in her press conference, putting forward March of next year as a possibility.
The next clip features the aforementioned Ray Barros,
CEO of Ray Barros Trading Group, seeing continuing QE as maintaining “a dichotomy between the economy and the stock market” that has fueled a bubble in tech stocks in both the Nasdaq and the Nikkei. He extended this view to encompass the Russell 2000 and predicted that the market will continue to “grind” higher with occasional “explosive” moves higher.
An interviewer dropped the words “financial crisis” and asked whether the current move is similar to that of the last crisis episode. Barros predicted equity markets will continue higher “until some external event brings an end to the belief that central banks will continue to support the stock market, and there doesn’t seem to be anything on the horizon at the moment.” This writer suspects that whenever such an “external event” does occur it will trigger, as it has in the past, yet another round of intervention by the authorities, with the potential for the Fed’s portfolio to expand to encompass equities.
Finally, Jason Brady,
MD and Head of Fixed Income at Thornburg, expresses skepticism, from a fundamental perspective, that new highs in the Nasdaq justify further purchases based on momentum, as opposed to value, given “disappointing earnings,” even as stocks have gone to new highs. Without using the word “bubble,” he agrees with Barros that “stocks have gotten ahead of themselves, largely due to central banks.”
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