See near-term weakness for Japanese mkt; yen at 98.5/$: NIB

In an interview to CNBC-TV18, Nick Parsons of National Australia Bank feels the Japanese market is likely to see a little bit of near-term weakness. "The yen will find support at 98.50 against dollar and that will help equities," he says.

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He adds that the fall in European indices is due to volatility creeping into the Nikkei index.
Meanwhile, Parsons does not see much uptrend in Brent crude as long as there will be downward revisions to global growth. Below is the verbatim transcrip of Nick Parsons's interview on CNBC-TV18 Q: What exactly has resulted in the bit of trepidation that we are seeing in the European markets? Do you think it is domestic in nature in terms of a certain number of cues such as the services PMI? Or maybe the volatility which is seeping into the Nikkei now is resulting in the tepid sentiment that we are seeing?
A: It's a combination of both these things but most, it is the volatility in the Nikkei index. We are another 520 points down on the main index today and have a bizarre situation here, where we are potentially about to enter into a bear market, in a market which is up 50 percent year on year, since the peak on May 23, the Japanese index, the Nikkei 225 is down 18.7 percent. So if we accept a 20 percent drop, is the onset of a bear market then that’s where we are in a market which is still up 25 percent since January 1, 2013. That is an example of the volatility that we are seeing globally and that volatility and nervousness has washed over into European markets this morning. The falls are only relatively modest.
We are talking somewhere between 0.25-0.50 percent of the main European indices. But given that we have got the GDP number, the nervousness in the European market is likely to continue. Q: Did you hear Shinzo Abe's speech? Given the other coordinates, are you getting a sense that Japan will lose much more of what it has gained, the Nikkei that is? Do you think that the peak is over now and we are in for some major consternation in global equity markets?
A: We are close to levels where Japan is about to bounce. There are a lot of people who are now turning quite bearish after an 18 percent decline who were as bullish as it was possible to be when the index was on 15,000 big figure. So, those swings and sentiments are quite instructive.
There is a very close relationship between the Nikkei index and the currency as you would expect. With the yen currently trading around 99.60 compared to 103 a little while ago, it is interesting if you go back and have a look at the trend that we are seeing since September of last year. There is very good technical support coming in around 98.50-98.60 on the dollar-yen chart. If that spot holds and there is no reason even despite the bearishness that’s abounding in the market right now, there is no technical reason to believe that that support won’t hold. That does suggest that the near-term downside is relatively limited.
We are reaching the limits of monetary policy in Japan. It is all very well to weaken the currency and boost stocks but that works as long as bond yields remain subdued. But as soon at bond yields start to rise, that undoes the good work in the equity market. We have reached the limits of monetary policy arguably in the near term although we know that we have Upper House elections on July 11 and the authorities would be very keen to see the markets stabilise before them. So, little bit of near-term weakness but not a lot. Support is there at 98.50 in dollar-yen. That in turn is going to help equities from here. Q: What about Brent crude because we saw a bit of a bounce back? Do you think that's just temporary? Do you expect a bit of an uptrend coming into Brent crude now?
A: I don't see much of an uptrend as long as we are going to see downgrades to global growth forecast which is where we are currently. Oil prices tend to move inversely to the US dollar. As the dollar index has started to come down, we are seeing the dollar weaken against the yen, against the euro, against the Swiss franc and against sterling. As the dollar weakens - that generally does offer some support to commodity prices.
We are seeing gold rallying from USD 1,340 per ounce up to USD 1,400 per ounce. We have seen the crude price rally a little bit. We now have Brent crude at USD 103.30 per barrel. But, this is more a reflection of what the price action in the US dollar rather than more fundamental that is linked to the global outlook. As long as we are seeing downward revisions to global growth that will be capping the outlook for crude from here.