Thursday, 7 February 2013

Japanese stocks surge as yen falls, European stocks fall on renewed debt concerns

The announcement on Tuesday that Bank of Japan Governor Masaaki Shirakawa would step down from his post three weeks before the end of his five-year term sent the yen tumbling on Wednesday on expectations that his replacement will ease monetary policy more aggressively. Stocks went in the opposite direction, the Nikkei 225 surging 3.8 percent on Wednesday to close at 11,463.75, its highest level since October 2008.

US stocks were up marginally on Wednesday, the S&P 500 rising just 0.1 percent.

However, in Europe, the STOXX Europe 600 fell 0.4 percent despite German factory orders rebounding 0.8 percent in December after having fallen 1.8 percent in November.

Renewed concerns over Europe's sovereign debt problems are keeping stocks down. Business Insider reports the latest missive from Citigroup chief economist Willem Buiter:

In a note to clients titled “New and old risks in the Euro Area,” Buiter says that the big rally in European equity and bond markets in recent months “can be only partially explained by economic fundamentals, and most of it represents a bubble driven by ‘positive contagion’.”

Buiter explains: “Much of the improvement is driven by liquidity, unprecedentedly low safe nominal and real interest rates, an increasingly frantic ‘search for yield’, unrealistic expectations about what policy will be able to deliver and other forms of irrational optimism and exuberance.”

He then adds:

However, in our view, the improvement in sentiment appears to have long overshot its fundamental basis and was driven in part by unrealistic policy and growth expectations, an abundance of liquidity and an increasingly frantic search for yield.

Buiter's warning on the situation in Europe is only the latest of several. Similar concerns previously highlighted by Business Insider include those expressed by Natixis Chief Economist Patrick Artus, Morgan Stanley interest rate strategist Laurence Mutkin and Citigroup interest rate strategist Robert Crossley.

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