Next Wave November 2009
How will inter-market distortions be resolved?
.Major market timbre — The tide that has prevailed since March—low interest
rates leading to dollar weakness and euro strength, resulting in rebounds for
equities and commodities—is beginning to turn. The euro/dollar rate looks to
have peaked and equities could be entering a correction phase globally. Gold,
on the other hand, is likely to keep rising. Our focus is on what happens to
long-term yields in the US.
. Japanese equities — TOPIX broke below 867 (10/5), confirming to our eyes
that it has embarked on a near-term second leg corrective wave. If the Nikkei
breaks below 9,400, it could ease back to 8,980 or 8,450 before the year is out.
Jasdaq and other small-cap markets are also in a corrective phase but nearterm
bottoms may be close at hand.
. Overseas equities — Shanghai peaked in August, South Korea in September,
and Australia and the SOX in October. We sense the DJIA and Hang Seng may
also peak in November and join the global correction.
. Interest rates — If the US 10-year Treasury yield rises above 3.562% (10/26),
we think it could climb to 3.73% or 4.25%. On the other hand, the JGB yield
could be capped at 1.53%, with the downtrend continuing through next spring.
. Forex — We are set to move from dollar weakness to yen strength. The
euro/dollar rate hit a near-term peak at $1.5064 (10/26) and could fall back to
$1.42. We see the dollar falling through ¥87.01 (1/21) sooner or later and
sliding down to ¥82.30 or ¥80 by next spring. We caution on intensifying
corrections for other yen pairs, such as the euro/yen.
. Commodities — Gains for gold may continue. We think it could rose to $1,190 or
$1,300 before the end of the year. On the other hand, WTI crude could peak at
$85 and LME copper at $6,800 and they could then be subjected to big
shakedowns.
Regards,
Allies Financial Services
Mumbai, India
Website : http://www.AlliesFin.BlogSpot.Com/
Email Group : http://Groups.Google.Com/group/AlliesFin
