Week Winding Down On Firm Note, But Wild Ride May Not Be Over

Overview: The biggest reversal in the S&P 500 since 2010, allowing it to string the biggest two-day rally in three years helped lift Asian and European shares today. All the Asia-Pacific equity markets advanced today but Japan, where the strength of the yen saw the Nikkei and Topix buck the move.  European equities. The 1.4% rally in the Dow Jones Stoxx 600 near midday in Europe retraces 2/3 of this holiday-shortened week's decline. Benchmark 10-year bond yields are little changed. The rally in US shares late yesterday was not enough to lift the 10-year yield back above 2.80%, and Australia, New Zealand, and Japanese yields eased. The 10-year JGB yield slipped into negative territory for the first time since September 2017. European yields are mostly a little firmer, with Italian and UK bonds yields dipping a slightly. The dollar is lower against most major and emerging market currencies. The dollar-bloc currencies and sterling are consolidating, while the euro, Scandis, and yen are extending yesterday's gains. Oil prices are firmer, recouping half-to-two-thirds of yesterday's drop. US shares are trading higher, and the S&P 500 is up almost 0.5%.  

Asia-Pacific

Japan reported a slew of economic data. Most of it was soft, but after contracting in Q3, the world's third-largest economy likely expanded in here in Q4. Industrial output fell 1.1% in November, but after the 2.9% gain in October, economists had forecast a sharper decline. The unemployment rate unexpectedly ticked up to 2.5% from 2.4%, though the jobs-to-applicants ratio also rose (1.63 from 1.62). The most disappointing news came from retail sales, which fell 1.0% after a 1.3% (initially 1.2%) rise in October. However, economists had expected retail sales to have held up better and expected only a 0.4% decline. The MOF's weekly portfolio report featured heavy foreign selling of Japanese bonds last week. The JPY2.2 trillion sold liquidates about 2/3 of what was bought in the previous two weeks and are the most since the end of September. It is not unusual for there to be large swings around the fiscal and calendar turns.  

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Read more by Marc on his site Marc to Market.

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