Markets Catch Collective Breath

Overview: The capital markets were stabilizing today after dramatic moves yesterday. Equity markets are recovering, and the dollar is paring yesterday's gains. Most equity markets in the Asia Pacific region rose, though Taiwan, South Korea, and Australia were notable exceptions. Europe's Dow Jones Stoxx 600 is posting a small gain, which, if retained, would be the fifth gain in seven sessions. US shares are higher after snapping a four-day advance yesterday. Benchmark 10-year yields are mostly firmer 3-4 bp among the Antipodeans, and 1-3 bp in Europe, where political anxiety is seeing Italian bonds underperform. The 10-year Treasury yield is hovering around 1.15%. The dollar is trading lower against the major currencies, led by sterling, the Australian dollar, and the Norwegian krone (0.4%-0.6%), while the yen, Swiss franc, and euro are posting minor upticks (less than 0.15%). Emerging market currencies are also mostly firmer against the greenback, and the JP Morgan Emerging Market Currency Index is higher for the first time in four sessions. Gold is snapping a four-day drop, its longest in a couple of months. After falling to around $1817.50 yesterday, it is trading back above $1860 in Europe. Oil prices are firm, and the February WTI contract is pushing above $53 a barrel, a new 10-month high. 

Asia Pacific

Japan reported a larger than expected November current account surplus of JPY1.878 trillion after a JPY2.144 surplus in October. About half of the miss can be accounted for by trade surplus, which did not narrow as much as projected. The trade surplus (on a BoP basis) was JPY616.1 bln, down from JPY971.1 bln in October, but more than the JPY474 bln economists projected. Exports rose by 4.3%, accelerating from 2.5% in October. Imports, however, were softer at 0.3%, down from 3.0%.  

With the balance of payments data, Japan reports portfolio flows. It showed that trust banks, dominated by Government Pension Investment Fund, shifted from stocks to bonds. Of the JPY5.1 trillion invested in foreign bonds in November, the US government, including local and agency bonds, accounted for JPY3.7 trillion. The US purchases were more than 10-times larger than October's purchases. Japanese investors were also notable buyers of European bonds and reduced the buying of Canadian and Australian bonds. In Europe, Japanese investors bought the most UK Gilts since 2014 (~JPY288 bln) and bought French and Italian bonds after holdings were pared in October. They were small sellers of Dutch bonds for the second month in a row.  

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Read more by Marc on his site Marc to Market.

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