The Bulls Are Emboldened

Overview: The S&P fell for the fourth consecutive session yesterday, the longest losing streak of the quarter, and this seemed to encourage profit-taking in the Asia Pacific region today. The MSCI Asia Pacific Index slipped for the second consecutive session, and even confirmation of the Chinese recovery failed to lift the Shanghai Composite. The Dow Jones Stoxx 600 in Europe is firmer, led by energy and industrials, while US shares are also recovering from yesterday's retreat. The US 10-year benchmark yield is steady around 0.90%, while peripheral yields in Europe and France are slipping to new record lows. The dollar is mostly softer, though some profit-taking is weighing on the Antipodeans a bit. The Scandis and sterling are the strongest in what has been a quiet forex session so far. Most of the liquid and freely accessible emerging market currencies are higher, and this is allowing the JP Morgan Emerging Market Currency Index to snap a two-day decline. Gold has recovered from around $1811 yesterday to approach resistance near $1850, while oil is consolidating near nine-month highs, with the January WTI contract straddling the$47 a barrel mark. 

Asia Pacific

Reports suggest dozens of Australian ships have been stranded outside of China. It was understood as a part of Beijing's protest against Canberra's foreign policy that puts it firmly in the US camp. Chinese state-owned media reported that power plants have been directed to stop taking Australian coal. The fact that the ships are not allowed to dock at port revealed as much. It is not clear that this signals a formal ban yet. China is Australia's largest export market and, in recent years, buys the majority of Australia's coal. Australia is preparing to file a complaint with the WTO over the tariffs imposed on barley. Separately, the minutes from the recent RBA meeting confirm that officials see the need for monetary and fiscal support for some time. The focus is on the labor market and wages (November report due early Thursday local time). Officials did not seem too concerned about the Australian dollar's recent strength and instead focused on the trade-weighted index, where it is not as strong as the bilateral exchange rate suggests.  

China's November economic data matched expectations. Industrial output accelerated to 7.0% year-over-year form 6.5%. Medical supplies, communication equipment, and electric machinery output were strong, while auto output slowed from elevated levels. Retail sales rose 5.0% year-over-year after a 4.3% gain through October. Jewelry and cosmetic sales surged. Fixed investment rose 2.6%, after 1.8% in October. The notable development here was the first increase this year from the private sector (0.2%), while pubic investment accelerated to 5.6% from 4.9%.  

China is running a fiscal deficit that is expected to be around 6.7% of GDP this year.  Its interest rates are well above the zero-bound, and the PBOC has not used its balance sheet to drive monetary policy. No Chinese QE. Capitalism with Chinese characteristics took another step that puts it on a more orthodox footing. Yesterday, the State Administration for Market Regulation levied fines on units of some of the largest internet companies: Alibaba, Tencent, and SF Holdings for taking advantage of their market positions, i.e., anti-trust violations. The fines seem like small potatoes (CNY500k or ~$76.5k), but that is the maximum under current law, which may be amended and lifted next year.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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