Capital Markets: "Investor Optimism Carries into the New Week"

From Marc to Market:

Overview: Investor optimism is reflected by the risk-taking appetite that is lifting equity markets and bond yields. With Japanese markets closed for a national holiday, the MSCI Asia Pacific Index was led higher by more than 1% gains in Hong Kong, Taiwan, South Korea, and Thailand. The regional benchmark advanced for the seventh session in the past eight and is approaching the year's high. European shares extended their rally, and the Dow Jones Stoxx 600 has risen in nine of the previous 11 sessions. It is within spitting distance of last year's high. US shares are also trading higher, and both the S&P 500 and NASDAQ set new records at the end of last week. Benchmark 10-year yields are mostly 2-4 bp higher, which puts the US Treasury yield near 1.75%. The dollar is mixed in mostly quiet turnover. The Antipodean and Swedish krone are leading the advancers, while the yen and Swiss franc are nursing small losses. Moody's maintained its investment-grade rating for South Africa before the weekend, and the rand is taking comfort, leading the emerging market currencies higher. Gold is consolidating its foothold above $1500, and oil prices are little changed.

Asia Pacific
Chinese and US officials continue to sound optimistic about a near-term trade agreement. The essence of the deal is that in exchange for not taxing a range of consumer goods as they come into the US just in the middle of December, China will buy more US soy and livestock, which it needs as this week's food component of CPI will show later this week. China has already maintained a stable yuan and has opened its financial services sector. US Commerce Secretary Ross indicated that licenses that will allow US companies to sell some product to Huawei will be granted soon. This had seemingly been agreed to several months ago.

The Abe government had signaled that it was prepared to offer some fiscal support if the sales tax sapped the economic momentum. The timing of the tax also corresponded to a disastrous typhoon. The Abe government is reportedly preparing a supplemental budget for as much as JPY5 trillion (~$45 bln) to be earmarked for disaster relief and flood protection.

Australia's September retail sales rose by 0.2%, half of what economists expected. Retail sales have been fairly steady. The average through September was 0.2%, which matches last year's average. When adjusted for inflation, retail sales fell 0.1% in Q3 after a 0.2% increase in Q2. Separately, in the region, we note that the Philippines central bank said its easing cycle was over. Malaysia reported weak exports (-6.8% year-over-year vs. expectations for a flat report after a 0.8% decline in August). Imports rose 2.4% following the 12.5% drop reported in August. It was the first increase since May....

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