Intelligentguess

The purpose of this note is not to force down any complex technical analysis / direction views. The simple visuals - allows you to conclude.

The study deliberately uses the Indian BSE-30 index versus the SP 500 ( the Indian NSE-50 was too much in line)

Visual I

In May 2004 the markets dropped (”crash” in Indian markets). ( BSE dropped from 6500 area to 4200 area while SP-500 had dropped from 1160 to 1065). Post the market drop - we can clearly see the SP-500 lending ( leading ? ) direction when the markets turned around.

Visual II ( since July 2006 )

Since July 2006 - both the Sensex and the SP-500 have been tracking each other.

Visual III ( S & P 500 movements since 1997 )

Conclude

• Pretty clear  that S&P 500 leads BSE-30 on market turns / direction
• In a rising market S&P  500 has too many resistances - and could rise slower than BSE-30
• However in a market thats falling  - S&P 500 would fall harder and longer initially - compared to BSE-30
• A lateral thinking solution for the short/ medium term- without having a view/bias towards the direction of market  - could be - “BUY” BSE ( or Nifty- NSE) and “Sell” S&P 500. ( i.e make a spread trade using one markets momentum against another)

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At the Monetary Policy Meeting held today, the Bank of Japan ( BOJ) decided, by a 6-3 majority vote, to retain the uncollateralized overnight call rate to remain at around 0.25 percent.

Governor Toshihiko Fukui said that the slowdown is temporary and the bank anticipates “gradual” rate increases. ( Fukui used the term “gradual” in July, when the central bank raised rates for the first time in almost six years and as Japan moved toward the end of a near decade-long battle with deflation. The BOJ has held borrowing costs steady since then).

BOJ’s view :

BOJ expects that Japan’s economy would continue expanding moderately ( Reality - GDP has dropped gradually since the last rate increase - please read the previous post )
Further the Domestic corporate goods prices are expected to be somewhat weak or stay flat in the immediate future, due to the drop in international commodity prices. The year-on-year rate of change in consumer prices is projected to continue to follow a positive trend, as the output gap continues to be positive.
BOJ accepts that - Developments in Japan’s economy have so far deviated slightly downward - but site the reason that this was mainly due to - weaker-than-expected private consumption.

Conclude

Again - its the BOJ’s fear of drop in private consumption that seems to be the guiding their Monetary Policy ( and not inflation).

The currency has fallen against the dollar every day this week ( from 118.50 to 121 ) as government officials urged the central bank to support economic growth after consumer spending slowed.

In the coming weeks there will be some pressure for the Yen to strenghten from the current levels - as the market discounts - possible expectancies of rate increases for the next BOJ meeting

The next meeting is scheduled for February 20th 2007

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