1 Overseas Indicator To Watch Every Morning Before Wall Street Opens

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 |  Includes: DIA, FXY, QQQ, SPY
by: BubbleBustInvesting

Of all overseas indicators to watch before Wall Street opens every morning, one stands out: The value of the yen vis-à-vis the U.S. and European currencies. A weaker yen is usually associated with stronger European and U.S. markets, as was the case Tuesday. By contrast, a stronger yen is usually associated with weaker European and U.S. markets, as was the case this (Wednesday) morning.

Major Equity Indexes at 7.20am

Index

Performance (%)

SPDR S&P 500 Trust (NYSEARCA:SPY)

-0.70

Powershares QQQ Trust (NASDAQ:QQQ)

-0.60

SPDR Dow Jones Industrial Average (NYSEARCA:DIA)

-0.62

Click to enlarge

The reason is quite simple: Japan has become the new reservoir of liquidity, ready to flow in every debt market where yields are higher than the near zero Japanese Treasuries; and every equity market that holds promise of a faster appreciation than the ailing Japanese equity market.

In fact, Abenomics- Japan's unprecedented Quantitative Easing (QE), has turned into a Deus ex machine for both the European and the U.S. markets. For European markets, Abenomics has substituted the ECB, the EU, and the IMF as a source of liquidity. This has served to depress yields of heavily indebted countries- yields for Greek debt have been dropping so fast that the country is planning to return to the bond market by 2014.

For the U.S., Abenomics provide a cushion for the Federal Reserve, as it prepares to unwind the several rounds of Quantitative Easing.

A few words of caution: Abenomics is a highly risky policy, given Japan's Debt/GDP ratio. Should the policy fail to revive Japan's economic growth, world markets may be in for another event far worst than the Greek event.

Disclosure: I am long QQQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.