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JPY downturn, Tesla earnings & China GDP...

Video Script

Hi everyone, are you ready for another busy week of trading? The Japanese yen has been sliding rapidly in the last week so I’m going to talk about whether the breakout in USD/JPY and other yen pairs is sustainable. Two of the big earnings results to look out for this week are Tesla and Netflix so I’ll cover those too as well as the highlights from the economic calendar that includes China GDP. Stay right there!


So the timing of this drop in the Japanese yen is interesting with the country just getting a new Prime Minister - but in actual fact- the moves in the yen don’t have much to do with politics in Japan. USD/JPY hit a 3 year high last week because of its correlation with US Treasury yields. When US government bond yields rise at a faster pace than Japanese government bonds known as JGBs - the yield advantage favours the dollar over the yen. The 4 percent slide in the yen in three weeks - which as we know is massive for a major exchange rate - has happened at the same time the yield on 10-year Treasuries rose to 1.6% for the first time since May. The high US inflation means the Fed are set for tapering and the market is pricing in US rate hikes next year - but inflation is still low in Japan and the Bank of Japan remains dovish, even with the new PM in place.


Right, let’s turn our attention to the equity markets. It’s next week that the big wave of tech turnings happens but things start heating up this week with Tesla and Netflix. What’s interesting is that the shares of both these companies have been ripping ahead of their Q3 results with Netflix up at record highs and Tesla back over 800 dollars and its highest since February. I say it’s interesting because if you look at the big tech stocks, they are all down somewhere in the region of 10% off their highs. Looking back over 12 months, both stocks have underperformed so it’s been a bit of a catch-up move. And looking out further out again - both Tesla and Netflix were massive leaders on the rebound from March 2020 and then just consolidated in 2021. What we could be looking at is the end of the consolidation, but earnings need to be strong to confirm a new bull run.


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OK let’s round off with the economic calendar. We start the week with a big one - that’s Chinese GDP. Keep in mind that while the economies of the US and Europe are bigger, China represents a huge portion of global growth. The consensus expectation is for 5.2% annual growth but if it comes in much lower, forecasts for stagflation - that’s high inflation, high unemployment, and low growth - will become more widespread. We also have the People’s Bank of China rate decision on Wednesday so if the GDP number does come in soft, perhaps the PBOC will cut rates. The top tier data finishes mid-week, where there is CPI data from the UK, Europe, and Canada. US inflation came in hotter than expected last week and I wouldn’t be surprised to see the same in these countries given the supply-shortages that are driving up prices are a global phenomenon.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.