Part of the reason for the waning risk appetite was a renewed slide in commodities, which was triggered by the US dollar gains. However, I feel that the initial bounce has no legs to stand on in the first place. Fundamentally, there is really nothing to support the rally. Even the view that the Fed raise rates because it is confident of the US economic recovery is a flimsy excuse at best.
Asian stock indices waded in red for much of today. China was alternating between gains and losses, remaining in a broader consolidation. The China’s beige book showed that domestic economic conditions deteriorated across the board in Q4. The private survey, which is published by CBB International, showed that corporate profits were weak, as the share of firms reporting gains slipped to the lowest on record. On a brighter note, the home price recovery appeared to have spread to more smaller cities in November, data showed, after the government implemented housing-related easing measures. New home prices increased in 33 cities out of 70 cities tracked by the authorities.
The Bank of Japan maintained its QQE program at ¥80 trillion although it announced changes to the bond purchase. The Bank will extend the average maturities of its bond purchases to 7-12 years from the current 7-10 years. However, the decision was not unanimous, with three dissenters. Governor Kuroda provided some colour during his press conference. He reiterated that the inflation outlook continues to show improvement, although he acknowledged that some indicators have indicated weakness in price expectations. As expected, he pointed out that oil prices could affect the time needed to reach the 2% target. Nonetheless, Kuroda reiterated that CPI is expected to reach 2% around the second half of FY2016 (Sep 2016-Mar 2017). On Japan’s economy, the governor stuck to an optimistic tone, saying that the Japanese growth is recovering gradually, supported by some pick-up in exports, and favourable business sentiments.
Following the conclusion of the ECB, Fed, and BOJ policy meetings, there is not a whole lot of inspiration for market participants as financial markets wind down for the rest of the year. The usual Fed-speak will also not be activated until the new year. Nonetheless, there are still some macro data which could add more bite to recent developments.
Next week is going to be a Christmas-shortened trading week. In the US, we are going to focus on inflation data (PCE Core), durable goods orders, housing data, and the final estimate of Q3 GDP. The weekly report from the Energy Information Administration (EIA) will also be closely watched.
In Europe, there is really no tier-one data on the calendar. Turning to Asia, the BOJ is going to release its minutes from the Nov 18-19 meeting, although today’s press conference probably reduced the importance of the proceeding. Japan’s inflation data should warrant some attention. Nothing noteworthy on the data docket for China while Singapore’s CPI and industrial production may gather some interest.
On Christmas Eve, US stock markets will close at 13:00 EST, and bond markets at 14:00 EST, while many European markets are shut for at least half the trading day. They will be closed on Christmas Day.
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