Markets Walk Tightrope After Yesterday's US Equity Drop

Overview: Global equities have fared better than the 1.4% slide in the S&P 500 yesterday may have implied. Asian markets were mixed, with China, Korea, Hong Kong, Thailand advancing. The Dow Jones Stoxx 600 from Europe is a little changed after falling for the past two sessions. News after the US close yesterday included better IBM outlook and news of the US Senate vote tomorrow that could mark the beginning of the end of the partial government shutdown is helping US equities stabilize today. Core benchmark bond yields are slightly firmer while the periphery yields are a touch lower.  The dollar is little changed against most of the major currencies and is sporting a slightly heavier tone against most of the emerging market currencies.  

Asia Pacific

The Bank of Japan pared inflation forecasts for the fourth time at its quarterly outlook report. Core inflation for the current fiscal year was shaved to 0.8% from 0.9%, but more telling was the cut in the next fiscal year's forecast to 0.9% from 1.4%. This is still above the market (0.7% median in a Reuters survey), and the BOJ hints that additional adjustment may be forthcoming. It noted that is forecasts did not include the cut in mobile phone fees or free school for young children. That latter alone could cut core CPI by 0.3% in FY19 and 0.4% in FY20. 

Following news that Japan's December exports fell 3.8% year-over-year, twice what the market had expected, including a 7% drop in exports to China, the BOJ cut its FY18 GDP forecast to 0.9% from 1.4%. However, it increased FY19 growth to 0.9% from 0.8% and FY20 to 1.0% from 0.8%.  

The decline in Japanese exports is a regional development. China, Korea, Thailand, Indonesia, and Singapore also reported declines in December exports. January does not seem to be off to a good start. South Korea report that in the first 20-days in January, its exports were off 14.6% year-over-year and imports were down 9.5%. Of note, its semiconductor exports had fallen almost 29% year-over-year. This appears to reflect falling prices as well as weaker volumes. Note that Texas Instruments, an important US-based chip maker reports earnings today and Intel reports tomorrow.   Separately, ASML, the Dutch-headquartered semiconductor equipment maker (largest in Europe), projected lower than expected Q1 sales. A fire at one of its suppliers appeared to account for nearly half miss.  

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Read more by Marc on his site Marc to Market.

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