Investors continue wrestling with the implications of last week’s surprise rate cut by the Bank of Japan. The yen is little changed against the dollar, near its 200-day moving average (~JPY121.50). The euro moved from the upper end of its two-cent range last Thursday to the lower end on before the week. The absence of follow through selling appears to have prompted some short-covering. The $1.0880-$1.09 area may stymie the upside.
On the very first trading day of the year, the Nikkei, DAX, and S&P 500 gapped lower, setting the tone to a particularly challenging month for investors. The last week and a half has been better, and this will likely carry over into the start of the new month. Before January could slip into the history books, the Bank of Japan sprung a last-minute surprise by adopting a tiered system that includes a minus 10 bp charge to new excess reserves.
The US dollar turned in a mixed performance last week. Firmer oil and commodity prices more generally helped lift the Australian and Canadian dollars, and many emerging market currencies. These currencies initially extended their gains ahead of the weekend in response to the Bank of Japan’s surprise 20 bp cut on some excess reserves (to -10 bp).
With equities sliding and oil pushing back below $30, it may feel like the resumption of moves in the first two and half weeks of the year, but it is different. It is considerably more orderly. The contagion from the equity and oil slide is more limited than previously, and even oil is recovering in the European morning to trade back above $30. European equities opened lower but spent the morning recovering, even if not fully.
Last year in the Asia Pacific will be remembered for shambolic shifts towards a more multipolar economic and political order. The United States alone can no longer shape global destiny but will have to share power with allies and rivals, even as regional powers find themselves threatened by their own challenges.
Asia followed suit, extending the recovery seen in the last couple of sessions to end last week. Equities rose as did oil prices. The MSCI Asia-Pacific Index rose 1.2%, and the Nikkei posted its first back-to-back gains this year. Brent firmed, with the March contract trading to $32.80.
Like a car ignition that finally catches after several attempts, the global markets are building on the recovery seen in North America yesterday. Asian stocks rallied, with the Nikkei leading the way with a 5.9% rally. More modest 1.25% gains from the Shanghai Composite, allowed Chinese stocks to finish the week with small gains. Australian, Korean, and Thai shares have also finished higher on the week. European bourses are higher, and the Dow Jones Stoxx 600 is up 2.5%. Not only is it poised to post a weekly advance, but so are most of the major markets, excep
The Asian equity markets failed to retain the early gains that had at least partially been fueled by the US equities recouping half of their losses. The MSCI Asia-Pacific Index lost about 1.7% and finished at new 3.5 year lows.
European markets are posting minor gains, with the Dow Jones Stoxx 600 up about 0.25% after hitting 15-month lows yesterday. The gap created by yesterday’s lower opening has not been entered. This is also true of several national bourses, including Germany’s DAX and the French CAC.
The market meltdown is extending into the third consecutive week. Once again, the attempt to stabilize has failed, punishing the bottom pickers.
There are three important economic events tomorrow. The UK will release its December employment report and November weekly earnings data. The US reports December CPI. The Bank of Canada meets, and is widely expected to be the first central bank from a high-income country to cut rates this year.
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Sterling has lost 5.6% against the dollar since December 28. The key factor is that the economy is slowing, which pushes further out in time a Bank of England rate hike. Anxiety over the EU referendum has not helped matters.
