- Nervousness is re-emerging in the markets as the deadline for a deal on the fiscal cliff draws closer.
- This and weaker-than-expected US housing data dragged down the US stock markets slightly in yesterday's trade.
- Bank of Japan further expands its asset buying programme. As the move was widely expected, the market reaction to the decision has so far been limited.
Christmas calm seems to be setting in and there have not been any major market moves overnight. US stock markets closed slightly down in yesterday’s trade as the deadline for a deal on the fiscal cliff in the US draws closer. US housing starts, which dropped 3% in November, surprised negatively and likely helped to drag down US stock markets. The slight rise in risk appetite overnight has also pushed down US bond yields but one can hardly talk about a major change in market sentiment.
This morning the Bank of Japan (BoJ) after its regular monetary policy meeting announced that it will expand its asset-buying programme by JPY10trn to JPY76trn. The BoJ kept its credit lending programme unchanged at JPY25trn. This was widely expected and the market reaction has been limited following the decision.
That said, Japanese stocks have rallied over the past months and the yen has weakened significantly as investors have priced in that the BoJ will ease monetary policy further going forward. The incoming Japanese government led by Shinzo Abe has said that it wants the BoJ to take bolder steps to end deflation and it might increase BoJ’s inflation target or even introduce a nominal GDP target.
Asian stock markets are generally trading moderately lower this morning and the BoJ’s decision to expand its asset-buying programme has not changed the sentiment as the decision was widely expected.
Overnight we have seen a slight reversal of the major trends in the global currency markets. Hence, after three days of weakening JPY is slightly stronger this morning against USD and EUR. That said, we continue to expect more yen weakness going forward as the new Japanese government seems set to put significant pressure on the Bank of Japan to step up monetary easing even further.
Commodity prices are generally lower this morning on the back of the slight increase in risk appetite.
To Read the Entire Report Please Click on the pdf File Below.