From Marc to Market:
Overview: The major central banks have successfully pushed back against the aggressive tightening the market had discounted. The Bank of England's decision not to raise rates after key officials seemed to suggest one was imminent. On the heels of what we argued was a dovish tapering announcement by the Fed, it spurred a dramatic decline in short and long-term interest rates. The drop in UK rates--21 bp in the 2-year and nearly 14 bp in the 10-year is the largest in several years. The S&P and NASDAQ rose to new highs. The former rose for the 15th time in the past 17 sessions. The latter is up for nine consecutive sessions coming into today. Still, the MSCI Asia Pacific Index pared this week's gains, as only Taiwan, Australia, and India rose among the prominent bourses. The Stoxx 600 was posting small gains in Europe. Barring a sharp reversal today, it is advancing for the seventh consecutive week. Benchmark 10-year bond yields are softer. The US Treasury is yielding 1.52%, off about three basis points this week. European bond yields are off 13-22 bp this week, led by Italy and Greece. After slipping after the FOMC statement, the greenback recovered yesterday, except against the yen, as cross positions were unwound amid the drop in yields. The dollar remains firm today. The Antipodeans, sterling, and the Norwegian krone are extending yesterday's losses. Outside of some central European currencies, most of the freely accessible and liquid emerging market currencies are heavy. The JP Morgan Emerging Market Currency Index is off slightly for the eighth time in the past 10 sessions. It will likely be the third consecutive weekly loss. The drop in yields has given gold a lift. After falling to about $1759 in the middle of the week, the yellow metal traded above $1800 for the first time this week today but encountered sellers. December WTI posted a big outside down day yesterday, falling to $78.25 but is back near $80 ahead of the US open. Copper has stabilized and paring this week's loss, which would be the third in a row. The CRB Index is off 1.8% this week coming into today. If sustained, it would be the second weekly loss since the third week in August.
Asia Pacific
Japan's formal emergency ended in September. The recovery in the world's third-largest economy is lagging behind the US and Europe. Japanese growth will be helped by additional fiscal stimulus. Today it reported that household spending rose for the first time in five months. The 5% month-over-month increase was stronger than expected and cut the year-over-year decline to -1.9% from -3.0%. There is talk that the economic package could be ready in a couple of weeks. Local press reports that among the measures being considered is a JPY100k cash payment for all children up to high school age.
The Monetary Statement of the Reserve Bank of Australia gave another opportunity to fine-tune the central bank's message, but instead, it stuck to its message. It does not envision that wage or inflation conditions that would allow it to hike rates before 2024. In some ways, Australia is more in the cyclical location of Japan rather than the US and Europe. Growth in the US and Europe likely peaked in Q2 or Q3. Australia's lockdown means the economy probably contracted in Q3. The RBA estimates this year's GDP at 3% and is set to accelerate to 5.5% next year. Meanwhile, the RBA will continue to buy bonds through mid-February at A$4 bln a week. The yield of Australia's generic three-year note fell nearly 30 bp this week after rising uninterrupted in the last five weeks by almost 100 bp. At 1.80%, the 10-year benchmark yield fell nine basis points this week, while the Australian dollar is edging out sterling for the worst performer this week with a nearly 1.9% loss (at ~$0.7380)....
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