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Markets nervous on yen’s rise

Bob Moon Mar 5, 2007

Markets nervous on yen’s rise

Bob Moon Mar 5, 2007

KAI RYSSDAL: I woke up early this morning, took a glance at the Asian market results on the wires and I figured, “Oh man, it’s gonna be another one of those days.” From Shanghai down to Hong Kong across India into Europe, the major indices closed lower than where they’d started the day.

So you know where this one’s going. Talking heads were predicting more of the same on Wall Street once the opening bell rang. All you have to do is look at last week to know stock markets like to follow each other down.

And we got some of that in New York today. Investors at least tried to keep things positive. Things were up, before they went down. But Marketplace’s Bob Moon reminds us there’s more happening out there than just people buying and selling stocks. For the second straight trading day today, the foreign exchange markets had unusual influence. Over worries about something called the “Carry Trade.”

BOB MOON: Borrowing yen for close to free and then reinvesting in higher yield currencies and assets in other countries seemed, for a time, almost like minting money. But since the yen and other cheap currencies have begun to rise in value, speculators have had to rush to — quite literally — cover their assets.

The trauma that’s caused has some investors worrying this could all keep feeding on itself. And Jeffries and Company chief market analyst Art Hogan says that’s sending shockwaves well beyond the Tokyo stock market.

ART HOGAN: Look at Asia-Pacific in general, you’re seeing a sell-off, on the fears that, you know, what’s going on really might be a precursor to a global economic slowdown. And I think that’s why we see this sell-off in Asia sort of work its way through Europe and over to the United States.

Wall Street investors hate that kind of uncertainty. But Hogan remains optimistic the markets here just need a little reassurance.

HOGAN: My guess is sometime this week we’ll come in and Asian markets overnight won’t have been down and we might even see some bounce one or two days in a row. I think that’ll sort of signal that most of this has worked its way through the system. We’ve had a pretty violent sell-off. It’s very abrupt and very sharp. So, you know, typically those types of corrections don’t last a long period of time. And I think this will be no different.

Others aren’t so sure. Bank of America Securities strategist Tom McManus sent a note to clients today cautioning that it’s “too soon to commit new funds to the market.”

And at, research director Brian Dolan suggests there’s more than just fear driving the decline on overseas markets. He says investors who had borrowed cheap yen when the markets were stable are reacting to very real losses.

BRIAN DOLAN: Depending when you got in, you could be looking at a significant 5 to 6 percent move against your underlying asset. And so whatever you might have gained is now wiped out, and is probably negative. So these people are selling not just out of a panic, they’re selling because they’re starting to lose a lot of money.

Some analysts believe that investments using the yen and other cheap currencies, such as the Swiss franc, have been helping push the U.S. stock market to the record highs it saw before last week. And they fear it may take some time to regain that momentum, if an important source of fuel is now gone.

I’m Bob Moon for Marketplace.

RYSSDAL: Picking up where Bob left off, today makes it three days in a row the dollar’s fallen against the yen. It hit a three-month low before getting some of it back.

The other factor driving investors today were the mortgage markets. Specifically companies that traffic in sub-prime loans, typically riskier investments that have been going bad with increasing frequency the past couple of months. A real estate investment trust called New Century Financial Corporation lost 68 percent of its market value today.

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