For the United States, it's a story about the "Far West" Inoue Tetsuo "Market Trends"

Publication date: 2017/08/30 08:36

Yesterday, in reaction to North Korea's missile launch, there was a session in which futures on the Nikkei Stock Average fell to 19,045 yen in the Chicago market in the early morning, but in Japan time there was no panic selling, and it declined by 87.35 yen, or 0.45%, from the previous day.

This may have been influenced by other markets in Asia that remained solid, particularly markets unrelated to North Korea risk. China's Shanghai Composite index rose for the third straight day, each day hitting year-to-date highs, and Hong Kong's Hang Seng index fell 0.35%, but after six consecutive advances up to the previous day and about three weeks since its last year-to-date high, the drop was mainly due to profit-taking. Also, similarly to Japan, the decline in Korea's KOSPI, which is also a 'home market', was mild at 0.23%, which is thought to have provided some support for the Japanese market.

However, yesterday's market gave the impression that the market mood changed dramatically each time the main market shifted.

From the time the Japanese market closed, and the main market shifted to Europe, U.S. stock futures such as the Dow fell sharply, and the currency market saw renewed yen strength, while U.S. Treasuries yields declined, signaling risk-off. Not to mention London's FTSE100 after the session, but Germany's DAX and France's CAC40 also opened lower, and after a while after the opening, it seemed as if three consecutive-day and five-consecutive-day declines were almost set. The Nikkei futures (Large) also fell from 19,380 at the daytime close (15:15) to 19,240, down 140 points, by 17:15. After the Japanese market closed, with no material news, a 140-point drop occurred in two hours. 'Damn it. Overseas markets clearly took this as material,' many may have thought in a panic.

However, this flow began to change markedly once Europe closed and the U.S. market alone became the main market. At the U.S. open, the Dow rebounded by exactly 200 dollars from its intraday low, and the VIX, which had risen intraday to as much as 14.34%, fell sharply, and as a result, the close was 11.70%, an 'abnormal' value below 12%, as noted in MD.

Yesterday, the first J-Alert was issued, and Japan felt a significant threat, but despite waiting, no message from the president or other U.S. officials was announced, and the president's comments were not released until long after news of an urgent United Nations Security Council meeting.

This is very different from what happened on the 25th last week when three missiles were fired. At that time the United States initially announced an analysis of the three missiles incorrectly and later corrected it, which was a embarrassment; North Korea might have thought, 'So that's the extent of your analytical capability?'
This time too, perhaps for that reason, they took time to issue cautious comments, but to me, judging from the slow online reporting by general newspapers, there is a sense that, honestly, whether the impact lands in the Sea of Japan or the Pacific, it's not much different; both are 'far west' matters.

That is the reason for the reversal.

Nikkei average futures have also recovered to 19,470 yen at the Osaka morning close, but buying at this stage should be treated cautiously. There are two reasons.

First, the technical adjustment is insufficient. As noted in 'Sign', only RSI14 is signaling, and the deviation from the 25-day moving average is not at a level that justifies buying for the Nikkei or even the Dow.

Second, the heavy cross trades seen yesterday—the lunches baskets and the intraday-after-hours 1,459 Nikkei futures contracts traded—clearly indicate that sellers existed at the prices. Only foreign players can dump such large lots. 'In the Far West, they don't feel their own country risk, but since they manage investors' money, they cannot buy Japanese stocks now (otherwise they cannot explain to investors if something happens).' This may be the case. (Yesterday, although I can't say it was definitively risk-off, the bond market also saw an unusual 5,000-option contract clearing in a single trade.)

Today, UK Prime Minister Theresa May is visiting Japan. At this timing, missile launches toward Japan are unlikely, but I won't buy now. I'll stay on the sidelines.