Japan's Nikkei $N225 and yield on US 10 YR Treasury note $TNX - drifted apart - now ready to converge again?


Tracking risk appetite across bipolar asset markets



MONDAY JUNE 3, 2013       18:30:00 GMT

The monthly chart tracks the very close co-movement of the Nikkei 225 and the Yield on the US 10 year Treasury note. For an explanation as to what the fundamental factors are which might help to "explain" this high degree of correlation - which is evident on the chart up until the last few months - the reader might want to consult my recent publication which is referenced at the top of this posting.

In recent months there has been a notable divergence in the paths taken by the two instruments. The evidence of the last couple of weeks is pointing to a reversion to the more typical paths of co-movement. The implication is that yields on the US Treasury note seem destined to continue rising while the Nikkei might have to continue correcting.

I shall revisit this rather extraordinary correlation in a few weeks to re-examine the extent of the expected reversion.


UPDATED ON JUNE 14th 2013 As anticipated in the post from almost two weeks ago the paths taken by each of the Nikkei 225 and the yield on the 10 year US Treasury note have moved further back towards the longer term trend which is evident on the chart below

$EPP, $EWA, $TUR - rolling over like many other indices


Tracking risk appetite across bipolar asset markets



SATURDAY JUNE 1, 2013       13:30:00 GMT


The close of trading on the last day of May brought a sell off in US equities, a stronger US dollar and underlined the erosion in the prices of emerging markets - particularly the debt market ETF's such as ELD and PCY - as well as several other key geographical indices.

The weekly chart below for EPP, an MSCI tracker for Asian markets excluding Japan, reveals the sharp negative divergences on the MACD chart which preceded the recent topping out pattern. As the dotted lines indicate there are plausible near term targets at both the $44 level and at $41.70 which coincides with the Ichimoku cloud top as well as potential support from the upward sloping trend line through the weekly lows


The MSCI Australia index as captured by the exchange traded fund, EWA, illustrates the same divergence as noted above and the indications suggest that in the medium term a short position would still be quite profitable.

I have previously been bullish on Turkish equities but the weekly chart below for the exchange traded TUR suggests that this index may have registered an intermediate term peak and could head towards the $60 level in the coming weeks.