Global equities to end the week lower

Global equity markets will end the week lower as investors take profit. The US and European declined and the weak sentiment will trickle down into Asia this morning.

The dollar index has staged a recovery overnight to 80.206, basically unchanged, due to the weak start earlier this week. Treasuries fell with the ten-year-note yielding up three basis points, touching 2.8773.

All these point to the markets feeling cautious and unsure of what to expect. The VIX has climbed 15.2% in the past four-days to 15.54. There is an expectation this will climb higher with a ‘single $5.12m bet that it will climb to 50%’, according to Bloomberg.

Retail sales did not disappoint with solid numbers in November exceeding expectations, coming through at 0.7% and October was revised higher to 0.6%, from 0.4%. These are clearly good numbers, the big ticket items, such as automobiles and furniture, have contributed to the stronger numbers but the smaller ticket items such as clothing are not doing as well.

This is consistent with retailers lowering their earnings forecasts as they struggle to get shoppers to spend during the holiday season. They have good reasons to be worried as Americans are spending more carefully. Adding to the dent, jobless claims have jumped higher to 368k. Economists have dismissed this as a seasonal adjustment, adding that job openings have risen to the highest level, this week.

As we head into next week, the FOMC meeting will no doubt dominate. The build-up of pressure on the emerging Asian markets is to be expected. Some fear a rerun of the summer where Bernanke hinted at the possibility of tapering, but there are those who are more optimistic this time round. The high likelihood of the Fed keeping rates at a record low and BOJ’s expanding monetary policy means this region will be buffered and supported by spill over effects.

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