From Marc to Market:
Overview: While the Belarus-Poland border remains an intense standoff, there have been a couple other diplomatic developments that may be exciting risk appetites today. First, Biden and Xi will talk by phone later today. Second, reports suggest the UK has toned down its rhetoric making progress on talks on the implementation of the Northern Ireland Protocol. Equities in the Asia Pacific region were mostly firmer, with China a notable exception among the large markets, even though the October data was generally stronger than expected. Europe's Stoxx 600, which has fallen only once this month, is edging higher to new records, while US futures are enjoying a firmer bias. Benchmark 10-year yields are 1-2 bp lower, which puts the Treasury yield near 1.55%. The European periphery is outperforming the core. The dollar is soft. The Scandis and Antipodeans lead the move, while the euro, yen, and British pound are little changed. Emerging market currencies are also mostly stronger. Here the Philippine peso is notable as it falls the most in seven weeks as corporates bought dollars. After falling by 0.65% last week, the JP Morgan Emerging Market Currency Index is edging higher today. Gold is snapping a seven-day rally, stalling near $1868. Support is seen in the $1842-$1845 area. January WTI was sold again as it poked above $80. It is pinned near last week's lows (~$78.65) as the US response is awaited. European natural gas futures are firm as the capacity auction results are awaited, and Europe faces its first cold snap of the season. Iron ore and copper prices are posting small losses.
Asia Pacific
Japan's Q3 GDP disappointed, but it is old news and will likely spur Prime Minister Kishida to support a large supplemental budget, which could be unveiled by the end of the week. Economic growth in the world's third-largest economy contracted for the fifth quarter in the past eight. The 0.8% loss of output in Q3 was more than the 0.2% expected by the median forecast in Bloomberg's survey. Consumption (-1.1%), business spending (-3.8%), and public investment (-1.5%) did the most damage. The GDP deflator was unchanged from Q2 at -1.1%. The Japanese economy is recovering here in Q4. Talk of the size of the supplemental budget has increased to around JPY40 trillion (~$350 bln) from JPY30 trillion. It is expected to include a cash payment for 18-year olds and younger, a tax break for companies that boost wages, a new subsidy for domestic travel, and pay hikes for caregivers.
China's October data was stronger than expected but does not shake off concern that the world's second-largest economy is struggling. The year-over-year pace of retail sales rose for the second consecutive month in the face of expectations for a decline. The 4.9% increase follows the 4.4% gain in September and 2.5% in August. In October 2020, it rose 4.3% year-over-year. Industrial output rose 3.5% from a year ago. It was the first increase since March. Last October, it had increased by 6.9%. The surveyed joblessness was steady at 4.9%. Fixed asset investment and property investment slowed. Chinese officials have not addressed the economic slowdown with large-scale fiscal or monetary initiatives....
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