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Central banks in South Korea, Malaysia and Thailand intervened in foreign-exchange markets Thursday as Asian currencies surged against the dollar on optimism about the region's economic outlook, underscored by strong economic data from China and signals that the yuan will continue to strengthen.
Taiwan, meanwhile, unveiled measures to buttress its banking system against rapid movements in foreign capital, the latest Asian country to introduce stricter regulations to control the risks posed by such capital flows.
The currency moves were exaggerated by thin trading conditions, with many investors away for year-end holidays. But traders said an upward trend for most Asian currencies appears set to continue, with China's decision to guide the yuan to a modern record against the dollar cementing the bullish sentiment.
"People are making a bet that growth in emerging markets will still be on an uptrend and that currencies will continue with their appreciation," said Lum Choong Kuan, head of fixed-income research at CIMB Group in Kuala Lumpur. "With the debt crisis in Europe and with the U.S. still showing protracted slow growth, investors will have no other place to put their money but here."
Capital has been flooding into Asia this year, helping to finance investments in one of the world's fastest-growing regions. But the influx of foreign money has raised concerns in Asian capitals about the perils of fast-moving capital flows, given the damage the region's economies suffered during the Asian financial crisis of the late 1990s, when a previous boom ended suddenly and foreigners rushed for the exits.
Today's chart illustrates how the stock market has performed during the average pre-election year. Since 1900, the stock market has tended to outperform during the first six to seven months of the average pre-election year. For the remainder of the year, pre-election performance has tended to be choppy and slightly subpar. In the end, however, the stock market has tended to outperform during the entirety of the pre-election year. One theory to support this behavior is that the party in power will make difficult economic decisions in the early years of a presidential cycle and then do everything within its power to stimulate the economy during the latter years in order to increase the odds of re-election.
The Bureau of Labor Statistics' limit on how long someone can be included among the ranks of the jobless was recently raised from two years to five. The bureaucrats made the move because of what they termed "an unprecedented rise" in long-term unemployment, i.e., things look very, very bad.
The concept of 'volatility compression' is a phenomenon of overall static readings on the daily VIX. When the open, high, low and close for the CBOE Market Volatility Index (VIX) are so sandwiched together as to be virtually invisible, compression is high. We're now getting high compression readings on the VIX and other volatility indices as seen here:
And our only question is whether these readings have more to do with weak, year-end volumes, or are genuinely indicative of investor complacency. That is, there's no question holiday trading contributes to a sessile VIX, but would it already have been so despite the thinner seasonal trade?
2010 was dominated by talk of the European crisis and that crisis was reflected in the dramatic selloff in shares on PIIGS exchanges, according to data from S&P BMI Global Indexes (via Dailly Finance).
Four of the five worst performing exchanges in 2010 were PIIGS members, and the other is another European state with a similar sort of crisis, Hungary.
The winners, well they followed two other 2010 trends: China and rising commodity, specifically metals, prices.
Say what you will about the future of the eurozone, its corporate sector is surely showing some resiliency.
Over the past three months, the German Dax is up 11.61% and the French CAC is up a more modest 3.25%.
While this may just be another sign of investors moving out of bonds and into equities, there is further reason to be confident about the region's corporate future.
Loan growth has returned to the eurozone's corporate sector, while it slides a bit for households. Loan growth was at 2.0% year-over-year for the eurozone in November.
From Societe Generale:
There was also good news in the fact that loans to non-financial corporations increased by €11bn, just more than offsetting the €10bn decline recorded in October. The annual rate of growth rose to -0.1% yoy from -0.5%. This adds to evidence that with the usual lag, the corporate credit cycle is beginning to pick up, albeit with still weak momentum.