From Marc to Market:
Overview: Activity in the capital markets is subdued today, ahead of tomorrow's FOMC meeting conclusion and the ECB meeting on Thursday. The MSCI Asia Pacific equity index fell for the third consecutive session. European bourses are heavy after the Stoxx 600 posted an outside down day yesterday. Today would be the fifth consecutive decline. Selling pressure on the US futures indices continues after yesterday's losses. Australia and New Zealand bonds played catch-up to the large drop in US Treasury yields yesterday, while European benchmark yields are edging higher. The 10-year US Treasury yield is around 1.43%. The dollar is mixed against the major currencies. The Canadian and Australian dollars and Norway are softer, while the Swiss franc and euro lead with around a 0.25%-0.35% gain. Most emerging market currencies are little changed, though the Turkish lira is paring yesterday's intervention-fueled gains. Led by the Hungarian forint ahead of the outcome of the central meeting, and helped by a firm euro, central European currencies lead the emerging markets. The JP Morgan Emerging Market Currency Index is off for a second session after breaking a four-week slide last week. Gold continues to consolidate and is within yesterday's range ($1782-$1791). Oil is also trading quietly, with the January WTI contract in a $70.50-$72.00 range. European (Dutch) natural gas is rising for the sixth session of the past seven, during which time it has increased by nearly a third. US natgas has fallen by almost 30% in the past two weeks and is off for about 4.4% this week already. Iron ore is paring yesterday's 6.5% gain, while copper is drifting lower and is extending its loss into the fourth consecutive session.
Asia Pacific
Year-end pressures are evident in Japan's money markets, and the BOJ responded by arranging an unscheduled repo operation for the second consecutive session. Yesterday's overnight operation was for JPY2 trillion (~$17.5 bln) after the repo rate rose to two-year highs. The repo appeared to have been lifted by dealers securing funding for bill purchases. Today the BOJ offered to buy JPY9 trillion of bonds under the repo agreement.
The US has offered to lift the steel and aluminum tariffs on Japan on similar terms as the deal struck with the EU. A certain amount, based on some historical market share, can be shipped to the US duty-free, but over that threshold, a levy will be imposed. Unlike the EU, Tokyo did not impose retaliatory tariffs. Estimates suggest that Japan shipped around 5% of its steel to the US, though some might have made its way through Mexico.
The regional highlights for the week still lie ahead. Tomorrow, China reports November retail sales, industrial production, new home prices, investment, and the surveyed jobless rate. Retail sales are expected to have slowed, while industrial output may have firmed. Investment in property and fixed assets may have stalled. Japan has its tertiary index (October) tomorrow, a November trade balance on Thursday (it nearly always deteriorates from October), and the Friday BOJ meeting. The BOJ is expected to extend some of its emergency facilities. Australia reports its November jobs data first thing Thursday morning in Canberra. After three months of job losses, a strong report is expected as social restrictions were lifted....
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