Street Capitalist: Event Driven Value Investments

I’ve established a new position in Wheeling-Pittsburgh Corporation (WPSC)

I’ll add more on this position later today.

One of the questions on traders’ minds is whether the Bank of Japan will cut rates before the end of the year. Doing so would definitely strengthen the yen against other currencies. Toshihiko Fukui has been hoping to raise rates at least one time during his time as chief.

On Monday we saw the release of the Tankan Survey. The Tankan Survey is the main indicator of Japan’s business sentiment on the state of the economy. The large manufacturer’s diffusion index came in at 23%, versus a forecasted 22%. This means that the Japanese business sentiment is at a near two year high, signaling strength in the economy.

Last month we saw a slight rise in unemployment, reaching 160,000, but YoY Unemployment decreased 7%.

The BOJ will need more indicative data on the whether the Japanese economy is positive in order to do a rate hike. The money supply data on October 8th will be important to watch in anticipation of the BOJ meeting on October 11th.

The USD/JPY has further to fall in the long run, but for now, traders should focus on technicals. There’s been a lot of profit taking for dollar shorts as of late, boosting the dollar versus most other currencies. Unless we see any more negative US data, this may continue for some time.

Today we saw the release of the ISM manufacturing index numbers, which came in at 52.0% versus an 52.9% in August. This drop was unexpected but did not seem to resonate in the market as the Dow set a record high of 14087.55 today.

We’re still seeing the Libor move at a significant premium to the Fed rate, currently it’s at 5.231% while the Federal Reserve’s rate cut brought us to 4.75% last week. Until the two converge, we should see more uncertainty in the credit markets, evidence of that is already emerging with the current contraction of the commercial paper market.

We also saw the Euro set another high against the dollar today, but there is a lot of talk that the ECB may opt for a rate cut in order to reign in the Euro. France’s President Nicolas Sarkozy has been lobbying for this kind of action, because a number of large European companies fear that they will see a reduction in exports due to such an expensive currency.

Such a rate cut would definitely hurt my bullish stance on the EUR/USD, so traders should proceed with caution. For short to medium-term trading, one could very will expect the dollar to reverse some of its losses against the Euro and Yen.

Some of my ideas that I’ve posted in the past, like shorting the dollar and looking at foreign equities are contingent on negativity with the US economy, if that’s not present they will take longer to pan out. Right now the key piece of data to look for is Friday’s Unemployment Rate release. This data will give us a better idea on the economy’s health so we can gauge where there will be a continuation of the current negativity.