From Marc to Market:
Overview: The market is hopeful today. The Johnson-von der Leyen dinner is seen as evidence that both sides see one more opportunity, and sterling is among the strongest currencies today. Hopes of a $900 bln+ fiscal stimulus package in the US helped stir animal spirits and lift US stocks to record highs yesterday. Nearly all the Asia Pacific equity markets but China rallied, led by Japan and South Korea, to snap a two-day decline. Europe's Dow Jones Stoxx 600 is at new highs, with energy and consumer discretionary the strongest sectors, and US stocks build on yesterday's gain. Benchmark 10-year yields are a little firmer, with the US yield near 0.94%. Italian and Greek yields are at new record lows, while Portugal's benchmark yield remains a little below zero. Note that the yield of the index of US corporate bond yields below investment grade fell to a record low yesterday (~4.34%). The US dollar is trading heavily against all the major currencies. Emerging market currencies are mostly higher, with the eastern and central European currencies leading the way. A few Chinese banks reportedly were dollar buyers late in the official session after the dollar fell below CNH6.5 in the offshore market for the first time in a couple of years. Gold is paring its recent gains. It had rallied more than $30 in the first two days this week and is off about $10 today near $1860. In contrast, crude oil is higher after slipping lower in the past two sessions. The January WTI contract is pushing back above $46 a barrel.
Asia Pacific
China's CPI fell below zero for the first time in more than a decade. The 0.5% year-over-year decline in November is weaker than expected. However, this likely overstates the case. Food prices are the culprit. They fell 2% year-over-year as pork prices plunged 12.5%. Recall that in October, pork prices fell for the first time in nine months. The price of pork fell by 3% in October and another 6.5% in November. Service prices rose by 0.3% in November, the same pace as October. Core inflation, which excludes food and energy, remained stable at 0.5%. The deflation in producer prices lessened. The November PPI was 1.5% below a year ago after a 2.1% decline in October. The recent rise in industrial commodities, like coal, oil, iron ore, and copper, may be helping mitigate the deflationary pressures at the producer level.
Separately, China reported strong lending figures. New bank loans rose by CNY1.43 trillion in November, more than double the CNY690 bln in October. Lending from shadow banking slowed slightly to about CNY700 bln (from ~CNY730 bln). Bank lending accounted for the rise in aggregate financing by CNY2.13 trillion from CNY1.42.
Japan reported a surge in October core machinery orders, which is a proxy for business investment. After falling by 4.4% in September, core machinery orders jumped 17.1% in October, starting Q4 on a solid note. The median forecast in the Bloomberg survey anticipated a 2.5% gain. The monthly gains were sufficient to lift the year-over-year rate into positive territory (2.8%) for the first time since November 2019....
....MUCH MORE
