Markets Stumble Into The Weekend

Overview: There is little reprieve from the equity meltdown ahead of the weekend. Major markets in the Asia-Pacific region, including Japan, China, India, and Australia pushed lower. The MSCI index of the region is near 15-month lows. The Dow Jones Stoxx 600 is off about 0.6% near midday in London to make new two-year lows. US shares are also trading lower in Europe. Bonds are not finding much love despite the continued sell-off in equities. This was evident in the US yesterday and in Asia and Europe, where benchmark yields are firmer. The dollar has stabilized against most of the major currencies today, though the yen and sterling are holding their own. The Dollar Index is off about 1% this week, which is what it gained last week.

Asia Pacific 

Japan reported November CPI and the cabinet approved next year's draft budget, which includes extra stimulative measures to offset the retail sales tax hike next October. Headline CPI fell to 0.8% in November from a year ago. It was at 1.4% in October. The decline reflects mostly the drop in energy. The core rate, which excludes fresh food, slipped to 0.9% from 1.0%. Excluding both fresh food and energy, consumer prices are up 0.3% from a year ago, down from 0.4% in October. The JPY101.5 trillion (~$900 bln) budget increases spending on welfare, public works, and defense. The extra stimulus provided this year, including the new JPY3 trillion spending package, and next appears to be around JPY6.5 trillion to blunt the impact of the sales tax hike that is expected to raise JPY5.6 trillion. 

Chinese officials seem increasingly concerned about its economy. They are preparing to offer a TLTRO facility like the ECB, it appears. Specifically, reports suggest the PBOC will build on the medium-term lending facility but offering lower cost liquidity for three years for funds lent to small companies.  Many observers expect the PBOC to cut the required reserve ratios at least a couple of times next year. Chinese reports suggest tax cuts and fee reductions will also be rolled out in the coming months.

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Read more by Marc on his site Marc to Market.

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