Asian Market Fluctuations Ease Trading Tensions

On Tuesday, Asian stock markets closed with mixed results.  The yuan rose to its highest peak in three months, extending a two week rally fueled by rebounding U.S. economic date and a thaw in Sino-U.S. tensions over the pegged yuan.  While the Australian dollar seems likely to continue gaining ground, Japan’s Nikkei struggled to maintain momentum after successive highs over the past week. The overall trend indicates that financial recovery is underway and in some cases the market is even a bit overstretched.  Analysts have their fingers crosses that market fluctuations will continue to reflect a rebounding global economy.

Many stocks in Asia and the U.S. are making significant improvement in terms of pricing power, fueling new rounds of earnings growth for many Asian consumer exporters. Japan's Nikkei Stock Average of 225 companies finished 0.5% lower as traders took profits after multiple days of 18-month highs. Australia's S&P/ASX 200 ended 0.9% higher due to increases in resource shares and backed by a quarter point interest rate increase by its central bank. South Korea's sluggish Kospi Composite added just 0.1%, even after Samsung’s nearly 20% surge over the last few weeks had investors betting on good earnings estimates, which could limit further gains in the next quarter. Taiwan's main index closed up 0.8% and New Zealand's NZX-50 was 1% higher while the Shanghai Composite finished nearly unchanged. These market fluctuations will all affect the U.S. Treasury’s semi-annual report on currency policy, which it has delayed until April 15th.

The U.S. government is anticipating a move in China’s currency, which banks think will happen within the next month or so. This speculation is fueled by its implied appreciation in offshore forward markets, to just above 3%, as markets opened in Shanghai after a long weekend. The upcoming currency revaluation, although a small one, would have huge implications for East-West trade relations. However, the move could also go the other way, defying market expectations. Some currency strategists think that China might be moving toward allowing two-way market fluctuations in the dollar/china exchange, instead of a purely one-way currency appreciation.

While traders anticipate the next push for Asian stocks from higher commodity prices, any significant increases will be tempered by the still relatively strong U.S. dollar and continuing weaknesses in U.S. construction. If the dollar continues to fall against the yen (currently at 94.31) the prospects for another round of gains in Asian and U.S. stocks looks promising. Market fluctuations have for now revealed more balanced trade between Asia and the U.S. with progress heading toward beneficial relations for many partners.

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