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Global Macro: Japanese Equities Remain Attractive

NEW YORK ( TheStreet) -- Economic data across the world continues to show weakness. Purchasing Managers Index readings in both Europe and China raised concerns over the future health of global economies, but central banks have been on guard.

The European Central Bank cut rates recently, and President Mario Draghi vowed to keep a close watch on the data. European PMI's have been below 50 for a number of months now, indicating that contraction is taking place.

China has seen a similar slowdown in economic data. The services sector as well as factory data released readings that were below expectations, and further weakness could hamper global demand.

One of the lone bright spots is the nonfarm payrolls data out of the U.S. Although the number wasn't spectacular, it did beat expectations. The volatile nature of economic data has recently shown the ability to beat expectations one month and miss by a large margin the next. With a schizophrenic market, it is prudent to remain cautious. Although U.S. equities remain the most attractive asset class, downside risks remain.

Source: Stockcharts.com

Early Tuesday morning, the Nikkei broke above 14,000 for the first time since June 2008. This was on the heels of strong employment data out of the U.S. Friday and a market holiday that caused traders to play catch-up today. Japan is a major exporter to the U.S. and with stronger data, the prospects improve for Japanese companies.


Earnings season has taken way in Japan, and many analysts have deemed it disappointing. Of the companies that reported, only 54% beat expectations. That is compared to a rate of 68.5% in the U.S.

"Abenomics," is the term coined for Japan's aggressive monetary and fiscal policy, made popular by Shinz┼Ź Abe, the current Prime Minister of Japan. The policy diminished the value of the yen by 24% and incited a 62% rise in the Nikkei index. Although the yen reached a psychological resistance against the dollar, proving unable to push past the 100 dollar/yen mark, the long term trend remains bearish yen.

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