World stock markets have had a positive start to 2018, signalling a strong year for economic growth ahead.

Forefront in the optimism is Japan, whose stocks increased by over 3%—bringing it to nearly its highest in 26 years. Leading the rally were energy and financials stocks.

This comes after US stock markets closed last night with another record high.

What this means for Japan

Topix index of all First Section issues on the Tokyo Stock Exchange jumped to its highest since 1991, rising by 2.1%. The Nikkei, short for Japan's Nikkei 225 Stock Average and the leading and most-respected index of Japanese stocks, rose by 2.6%.

The Nikkei stock average surged above 20,000—something it has done before, but has not been able to sustain in the past.

The anticipated market rally in 2018 will commemorate the longest winning streak since 1989, when during the Japanese asset price bubble, the Nikkei gained for the 12th straight year.

"With a global economic expansion, Japanese companies will likely keep double-digit growth," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

Analysts have said that the expected yen’s weakness, combined with the upbeat economic outlook, means Japanese companies will be aided in posting another record profit in the new year.

Despite the good news, analysts have also warned of a risk of volatility, with Senior technical analyst at Mizuho Securities Co., Yutaka Miura saying:  "Although the weather is fine, the waves are high... there will be scattered rain."

Describing the surge, Miura also said: "More overseas market players flocked to the market in the afternoon amid hopes for higher (Tokyo) stock prices this year."

How the US plays a part

Analysts have also forecasted the dollar to trade between ¥95 and ¥120 in 2018, compared with around ¥113 in late December.

Japanese companies such as Toyota and Sony depend heavily on the US market. Construction machinery manufacturer Komatsu, for example, will receive a boost thanks to the US tax overhaul legislation enacted in late 2017.

A potential defeat of Trump's Republicans in the US midterm election in November will likely start to gradually be factored in by investors, with the Nikkei possibly dropping below the 20,000 line.

Mizuho’s Miura concludes: "Following the passage of the tax reform bill, political conflicts between Republicans and Democrats will become clearer toward the midterm elections,” adding: “The conflicts may hamper Trump's efforts to push through other policies such as his long-promised plan to boost investment in infrastructure which is scheduled to be announced in January.”

Below Kathleen Brooks, Research Director at City Index, provides commentary on the latest bitcoin affairs.

Bitcoin is recovering from one almighty correction last week where it dropped from a high of $7,882 to a low of $5,605 in just three days. That is a drop of nearly 30%, which is technically bear market territory. However, this is Bitcoin and due to this it doesn’t react the way other asset classes do. At the start of this week Bitcoin is up $1,000, and has retraced nearly 50% of last week’s decline.

Factors that drove last week’s decline in Bitcoin included:

• The cancellation of the upcoming Bitcoin fork, Segwit2x. This may have weighed on the price as pre-fork buyers who were looking to benefit from another upsurge in price, as we saw with the fork that created Bitcoin cash back in August. This impact should be temporary.
• The European Securities and Markets Authority issued a warning on the risks of initial coin offerings, saying that they were highly risky and very speculative. They are not the first authority to warn over ICOs, in fact China banned them, with little effect on the Bitcoin price, and thus we expect Europe’s warning on ICOs to be mostly brushed off by Bitcoin traders.
• The technical signals showed bitcoin deep in overbought territory, thus there may have been some hesitation when Bitcoin approached the $8,000 mark, which may have led to a rush to the exits.

Looking at the factors that may have driven Bitcoin’s sell off, most appear short term, and indeed, the sharp bounce back on Monday suggests that traders are using any dip as a buying opportunity.

So, where could Bitcoin go next?

This is a tough one to answer as Bitcoin appears to be a runaway train overcoming any obstacle thrown in its path. From a technical perspective, there is nothing to stop Bitcoin hitting $10,000 per USD (see chart 1), as long as we close above $6,500 today. Usually when a price moves through a big psychological level it continues to move higher rather than pausing or reversing course, thus $10,000 could the start of life above 5-figures for Bitcoin bulls. Thus, any future sell offs, and we warn you that they can be severe, could be used as further buying opportunities.

Perhaps the biggest challenge for Bitcoin will come when volatility elsewhere starts to rise. If the Vix was to surge like it did back in late 2015/ early 2016, then traders may lose interest in Bitcoin and pile into other fast-moving asset prices. However, for pure speed and adrenalin, nothing beats bitcoin’s price movements right now. It’s great if you can pick up on the dip and ride the wave higher, but it is not for the faint-hearted.

Source: City Index and Bloomberg

Welcome to Finance Monthly's countdown of the Top 10 Greatest Trades that the trading floor has ever seen.  We take a look at each trader, the audacious move they pulled off and where they are now.

Scroll through to see who tops our list.

10. The 1929 Short - Jesse Livermore 

Result: $100 million profit

Livermore can be classed as one of the world’s pioneers in terms of shorting the market.

His first attempt was shorting the market by selling Union Pacific just before the San Francisco Earthquake of 1906. The pay-out was £250,000 but that was only the beginning. He followed that up by shorting the market again in 1907. As the stock market crashed Livermore took home $1 million for his efforts. Always looking for the next target, he concentrated on the wheat industry in 1925, with another successful short that earned him $3million.

Livermore was gaining a significant reputation but his real coup de grace would make his earlier trades pale in comparison. In the early autumn of 1929 the Dow Jones is up five-fold in the last 5 years and the euphoric atmosphere that pervaded the entire floor wasn’t shared by Livermore. As the money flowed in reaching an $8.5 billion high, it got to the point where the outstanding loans had exceeded the current amount of money in circulation. In September, as the stocks began to level out, Livermore gambled on his biggest short, which took place on that fateful day in 1929. Looking for a bigger haul and seeing what was coming, Livermore shorted the entire market. As the US Financial sector went into meltdown, Livermore earned himself $100million which in today’s market would equate to a $1.4 billion-dollar haul.

Incredibly, Livermore was declared bankrupt and was banned from the Chicago Board of Trade in 1934, just five years after his greatest success as an investor. No one knows exactly why and indeed how he lost all his money, but his reputation as one of the best ‘shorters’ still stands to this day.

Next: Shorting Black Monday

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Reports indicate that in recent months, the US dollar rally may be more of a hindrance to emerging market equities than to currencies themselves. The current relationship between the US dollar and emerging market peers, according to Bloomberg, isn’t conforming with conventional wisdom.

Looking at the performance of the dollar, and compared with market equities and currencies, Finance Monthly has heard from a number of sources, in the US and beyond, on the growing relationships between these indices.

Mihir Kapadia, CEO and Founder, Sun Global Investments:

A US dollar rally may be a bigger hassle for emerging-market equities than for currencies these days.

The US dollar has had a rough year till date, having lost nearly 12% of its value this year. This is largely attributed to doubts over the Trump administration’s ability to achieve healthcare reform, tax cuts and infrastructure spending. Confidence on the US administration’s ability to deliver growth-boosting fiscal policies is low, while the positive political and economic situation in Europe has further added to the pressure on the US Dollar. It’s been a reversal of fortunes of sorts as there are somewhat reduced expectations for tighter monetary policy out of the Federal Reserve in the US and higher expectations for more tightening out of the European Central Bank.

The weaker dollar probably does not unduly worry the President as it boosts the US’s export competitiveness. Trump probably views it as a positive as it will boost the US industrial heartlands.

However, this has been a negative factor for overseas investors in US assets, increasing their costs or reducing their profits. The slump in the dollar has already dampened the spirits of currently high performing Asian equities as there is an increasing fear that the weaker dollar could make Asian exports less competitive over time.

A weaker dollar has helped EM bonds as fears that an accelerated monetary policy tightening from the Fed Reserve would put pressure on the dollar-denominated debt of Asian companies, have receded. However, these taper tantrum type fears could represent a risk factor as EM equities are highly correlated with US equities.

Daniel Harden, Head of Desk, Global Reach Partners:

The strengthening US Dollar does appear to be having a proportionately greater impact on emerging market equities at present. The key reason for this is that many emerging economies are pegged to the Dollar so when it goes up in value their own currency follows which can have a detrimental impact on exports. This can also effect emerging market companies with offshore earnings and make foreign debt repayments more expensive.

That said, the US Dollar is still in a relatively weak position and current events suggest it may remain so for the foreseeable future.

The currency had hit a 15 month low against the Euro. It then rallied following the release of an upbeat Non-Farm Payroll (NFP) report earlier this month which highlighted the creation of 209,000 jobs, a figure well ahead of expectations. It also reported a dip in unemployment to 4.3% which matches a 16 year low in the US.

The NFP Report has now provided the market with a good selling opportunity on the US Dollar. It also remains down against all G10 counterpart currencies, impacted by low inflation and interest rate differentials.

Moving forward you cannot ignore the on-gong political situation where there are serious questions of confidence over the ability of the Trump Presidency to deliver a longer term economic boost. While Mr Trump presided over an initial bull run on the Dollar, this appears to be over and there are now emerging signs that the market is losing confidence in both his administration and the Dollar.

The developing situation in North Korea, what effect this will have on the Dollar and the wider economic impact which could result from an escalation in hostilities is a big unknown variable in this whole equation. It is often the case that events which threaten global security will strengthen the US Dollar which is seen as a safer investment.

Looking at the bigger picture where we have an increasingly dovish FED, operating under an unpredictable and sometimes volatile President, with interest rate differentials against it and falling inflation, there is a strong case to suggest the dollar sell off will continue. The potential impact, including the effect this could have on emerging market equites, may therefore be over-stated.

Josh Seager, Investment Analyst, EQ Investors:

Emerging markets are especially vulnerable to a strong dollar when there has been lots of flows into emerging markets prior to the dollar strength. This is what happened prior to the Asian crisis and the taper tantrum. Generally, lots of money flows into emerging markets because of depressed returns elsewhere, imbalances build (for example an over-reliance on foreign funding), the dollar gets stronger and then investors take out their money at the same time causing a big sell off.

There are few signs of such a build-up of capital. The MSCI EM index has underperformed the MSCI World index by 50% over the past five years and flows have been coming out of emerging markets as a result. As a consequence, we aren’t so worried about a US Dollar related emerging market sell off ourselves.

The dollar is negatively correlated with commodity prices so if strong dollar causes weak commodities this can hurt emerging market equities. Emerging markets also benefit from global growth so if the dollar is strong and trade is good there is unlikely to be an issue.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Below Sam Bennett, COO at Frontierpay, provides Finance Monthly with a brief overview on UK inflation over the past few weeks, looking at the current state of play, the evolution of optimism and the overall position of the pound among global currencies.

Mark Carney must have breathed a sigh of relief from his office in the Bank of England when the news reached him just a few short weeks ago that UK inflation had fallen to 2.6%; contradicting market expectations that it would remain at, or even rise above May’s figure of 2.9%

The rate at which inflation rose over the last year had been better than predicted, after hitting what was already a 20-month high in June 2016, when the UK voted to leave the European Union. The CPI’s unexpected drop in July, which came largely as a result of lower oil prices reducing the cost of petrol and diesel, was therefore very welcome.

While the fall in inflation was quickly hailed as good news by many businesses and everyday consumers, sterling’s position in the currency market was hit hard, with a slowdown of the domestic economy creating significant downward pressure.

The 0.3% fall led to an immediate drop in the value of the pound, which landed at €1.12 against the single currency and shed more than a cent against the dollar. As sterling continued to feel investor pressure in the following days, the pound fell another 1% against the euro and found itself sitting below $1.30.

Today, a little over three weeks since the fall in inflation was first announced, the state of play for the pound isn’t looking any more encouraging than it was in those first few troublesome days.

Despite German industrial production falling unexpectedly, an event which we might have expected to provide some relief, sterling has not only remained under pressure, but has actually slipped further against the euro and dollar. Even with the most recent data from the Eurozone being weaker than many analysts predicted, potential investors are still wrestling with the uncertainty of the UK’s weak UK inflation data.

It should be pointed out that there is still some relative positivity in the investor community, thanks largely to robust global growth rates. Equity markets are sitting at fresh highs, with global indices rising, on average by 23% this year so far. Cause, therefore, for some optimism.

For the time being, however, the UK continues to look like the perceived weaker cousin, in comparison to the other major global currencies. We’ve seen several attempts to gain ground against the euro and the dollar pushed back, and live prices have settled at levels of around €1.10 and $1.30. As lower inflation numbers continue to weigh heavily on the pound, a rapid turnaround isn’t looking very likely.

With socio-political uncertainty reigning the decisions of businesses and banks, currency fluctuation is unpredictable and both the USD and GBP have been undergoing copius periods of pressure. Here Bodhi Ganguli, Lead Economist at Dun & Bradstreet gives Finance Monthly an updated run down on the currencies and their status moving forward.

An investigation of the movements in the dollar-pound exchange rate needs to balance short run fluctuations against the medium to long term fundamentals. While day-to-day volatility in the currencies can produce financial gains for a subset of finance professionals like currency traders, the underlying trends in the exchange rate are far more important for the overall growth of the two economies, and eventually of more significance to businesses.

Note that the USD-GBP exchange rate is a “relative price”, or in other words, it is the price of one currency in terms of the other currency. As such, all movements in the exchange rate are relative to each other. Therefore, factors that have an impact on either the USD only, or the GBP only, will end up producing fluctuations in the exchange rate. The latest phase of weakening in the GBP relative to the USD began in earnest after the Brexit referendum in June 2016. The UK’s decision to exit the EU was seen as detrimental to growth in the near to medium term, causing erosion of investor confidence in the GBP. The immediate reaction was a slump in the relative price of the GBP; in less than a month the value of the GBP fell from USD1.45 to USD1.30 or nearly an 11% depreciation in the sterling. Since then, the GBP has lost even more ground vis-à-vis the USD.

The USD’s behavior over the last couple of years was also a factor behind the post-Brexit slump in the GBP. The drop in the pound happened to coincide with one of the strongest phases of the dollar in recent history. Against the currencies of a broad group of major US trading partners, the USD started appreciating sharply and steadily in mid-2014, and by the time of the Brexit vote in June 2016, it was already 18% stronger compared with July 2014. Since then, the USD gained even more thanks to investor optimism following the election of the Trump government.

More recent trends in the USD and GBP offer clues to the near-term movement of the exchange rate. The pound will remain under pressure during the course of the Brexit negotiations that have just commenced primarily because there is significant uncertainty associated with them. Brexit remains a systemic risk that will weigh on growth in the near term. More importantly, investor sentiment will be subject to frequent changes until Brexit is complete and any perceived increase in risks will weigh on the pound. This will tilt the exchange rate in favor of the USD, also, partly because the USD is a safe haven currency that investors flock to whenever there is an increase in geopolitical uncertainty. Over the longer run, we expect the pound to weaken modestly against the euro (the currency of the UK's most important trading partner) until 2021, but this assessment assumes that elections on the continent will be won by pro-European parties and the Greek debt crisis will not return. Against the dollar, a very modest strengthening should set in towards the tail end of this decade but political risk in the wake of the Brexit negotiations has the potential to impact on the exchange rate. In any case, currency volatility will be a bigger issue than in previous years, also caused by political events on both sides of the Atlantic and the Channel.

Monetary policy in the two countries will also be a driver. The US Federal Reserve has already started the process of monetary policy normalization—the only major western central bank that has started raising interest rates from the ultra-accommodative lows necessitated by the Great Recession. On the other hand, the Bank of England launched the latest round of monetary stimulus right after the Brexit referendum and continues to support the economy with record low interest rates. The spread between the US and UK interest rates will also favor the USD, although the USD has its own issues to worry about there. Following the latest rate hike by the Fed in mid-June, the dollar remained relatively subdued. There are two main reasons why the link between a Fed rate hike and dollar appreciation seems broken for now: one, investors are assigning a low probability to aggressive rate hikes by the Fed given the recent weakness in US inflation data, and secondly, while investor optimism is still there, it is now widely accepted that the Trump administration’s fiscal policy measures, like tax reform and deregulation, will not add to US growth in 2017. In fact, implementation risk remains high given the level of disagreement on key issues among Congressional Republicans.

Ironically, while currency weakness fundamentally signals weakness in a country’s economic prospects over the longer run, it could benefit an economy in the short run. This is clearly evident from the gains in manufacturing seen in the UK, thanks to the weakness of the pound. However, there are downside risks from the weak pound, like rising inflation, which will weigh on consumers and prompt the BoE to raise rates. Similarly, no one seems to mind the lackluster reaction of the USD to the Fed rate hike. Manufacturing benefits, corporate profits gain, and even the Fed might not be too worried as the weak dollar will boost inflation and help it stay on track to raise rates. Eventually, of course, economic fundamentals will take over and the exchange rate will reflect the varying economic prospects of the two countries.

With Donald Trump's inauguration, a new, contradictory era of the USD may have begun, points out Innovative Securities' analysis. They remind: in the past decades, presidents refrained from making clear statements about the USD but the new Administration seems to be different and that can lead to a new situation.

Trump and his colleagues expressed concerns about the strength of the dollar or complained about other currencies being undervalued, underlines the analysis, adding: they mentioned the euro, the Japanese yen, the Chinese yuan as well as the Mexican peso. The choice of these countries is not surprising: the US has a trade deficit against them.

According to Trump, these countries devaluate their currencies to be more competitive, and the US must take steps to change the situation, reminds Innovative Securities, mentioning that an OECD survey also points out that the euro is nearly 25% undervalued, the yen is 11% undervalued, while the Mexican peso is undervalued by 147%. Since Trump's inauguration though, peso is constantly strengthening.

But the USD is not only strong because of its trading partners, believes Innovative Securities. The US is still one of the most beneficiary players of globalization and we can see that since 2010 the USD strengthened constantly while trade deficits remained the same or grew. The US also has a huge import demand for its domestic consumption totalling up to 70% of its GDP. Trump's unofficially announced domestic tax cuts, deregulation and infrastructure investments can further strengthen the dollar. Even the desired stronger US economy, different monetary policy and the rising bond yields are favouring the greenback, they add.

The markets recognize the conflicts between the facts (that helps the dollar) and the words (the comments that are negative for the USD), and actions are needed for clearing the picture, says the analysis, adding: in the upcoming months markets will concentrate on the loosened fiscal policy and the evolving inflation which may lead to a lot of bullish mix that supports the dollar in the near future. In the middle term, though, the company expects a turnaround. The contradictions may stay for long, summarizes Innovative Securities, saying: a more volatile market environment may come, where old policies are eliminated while the Trump Administration continuously tries to make verbal interventions in favour of their policies.

(Source: Innovative Securities Web)

Sterling has encountered significant losses in recent days with the increasing support for anti-EU theme from the recent ORB polls conducted regarding the referendum. More than 55% of voters showed their support for leaving EU while only 45% were interested in staying back with EU. The important point to note here is that price action has been driven mostly by change in market sentiments based on results from poll data. The volatility of GBP has consequently increased since the announcement of referendum and has dropped to its lowest levels as last seen in 2008.

GBP has been performing very bad especially against dollar and GBP/USD reached its all-time-low level of around 1.39 during the month of February 2016. It was the time when initial talks about referendum came into picture that caused huge fears among the investors regarding the financial instability of UK. Based on technical analysis from the options market, there is 72 percent chance of GBP/USD pair trading anywhere between 1.32 and 1.51, by June 24th once the results of the referendum are announced. The GBP/EUR exchange rate is meanwhile expected to range between 1.33-1.35 after the voting.

The topic of British Exit from Europe has been discussed for years and became popular during February 2016 after Prime Minister David Cameron promised to conduct a voting for the same by June. Though voting will be held on June 23^rd, it will not result in immediate departure of UK from the European Union. It would commence a multi-year negotiation period on the terms for exiting EU.  Based on polls conducted during last few months, there has been mixed results on the majority’s bias with some polls showing minor leads on either side. The below table from Wikipedia shows the results of various polls conducted regarding the referendum,

Britain has always remained a semi-detached member of European Union and most of the British bureaucrats believe that they can do better alone. Some of them are frustrated by the fact that EU gets benefited more from the UK than UK from the EU.  The recent economic problems of some EU members like Greece have caused huge disinterest regarding the EU membership among British investors.  Though pound has decreased significantly against USD and the trading is done based on shifting expectations for the referendum, GBP/EUR is showing a longer-than-average bullish day’s range as of June 15^th, which is giving a positive outlook for trading GBP. It is an early sign for positive impact on GBP in the currency market, after the steep decline experienced in recent days. The important fact to note here is that Brexit will not only affect GBP, but also Euro.

Based on certain analysis reports, UK leaving the EU could result in loss of more than 950, 000 jobs by 2020 and deficit around £100 billion which is around 5% of their GDP. When looking at possible impacts for each decision, it is important to note that whatever significant ground lost in recent days is likely to be made up relatively fast once the business gets usual after the referendum. But even before voting, many investors are selling GBP as risks are associated more with the decision. If we look at the current account deficit of UK, it clearly indicates that GBP is becoming weaker. UK has a current account deficit of more than 5 times its GDP, which is the worst for any developed nation making this a strong reason for sterling’s weakness in currency market. In the coming days closer to referendum, we can expect to see sterling respond less to economic reports of UK and trade based on Brexit-related updates.

Any pro-Brexit pool can result in further decline of GBP and anti-Brexit news could cause an upward trend on GBP. If the Brexit vote becomes positive and pound hits the lows, it will be a good time to buy GBP as it will definitely bounce back after some time. The Bank of England might come for rescue by announcing interest rate hike to generate a positive sentiment among the investors. Euro will also face downward pressure, if the Brexit vote becomes positive and is already witnessing some volatility based on the poll results.  Trading GBP amid this volatility is a risky affair for currency traders since none of us have a crystal ball. Since the vote is currently too close to call, it might be sensible to lighten up your exposure ahead of the referendum.

Dr. Laura Simmons, Senior Advisor, Cornerstone Research

A Cornerstone Research report released at the end of March shows that total settlement dollars in securities class actions hit their lowest mark in 16 years in 2014. The average settlement amount also reached its lowest level since 2000, according to Securities Class Action Settlements—2014 Review and Analysis.

Total settlements dropped to $1.1 billion (€1 billion), from $4.8 billion (€4.4 billion) in 2013, primarily due to a lack of large cases. The largest settlement amount in 2014 was $265 million (€246 million), compared with $2.5 billion (€2.3 billion) in 2013. According to the report, the number of settlements remained largely unchanged last year at 63.

The report also examines ‘estimated damages’, the most important factor in predicting settlement amounts.” Average “estimated damages” decreased 60% from 2013 and were 70% lower than in 2012.

“Since stock price movements are fundamental to damages calculations, lower ‘estimated damages’ may stem from the reduced stock price volatility during the years when many of these cases were filed,” said report co-author Dr. Laura Simmons, Senior Advisor in Cornerstone Research’s Washington office. “And, as the market has remained relatively stable on the whole in 2013 and 2014, it suggests that this trend of lower ‘estimated damages’ for settled cases may continue.”

In addition to lower average ‘estimated damages’, a smaller proportion of large cases involved third-party defendants and public pensions as lead plaintiffs, which contributed to the lower level of settlement amounts. Both of these factors are typically associated with higher settlements.