- Japanese stocks are higher and the yen weaker, following better-than-expected industrial production data and flat inflation numbers.
- U.S. fiscal cliff talks continue -- Republicans reject the White House budget proposal.
- U.S. stocks closed higher and Asian markets are showing modest gains.
- Focus on euro zone unemployment, U.S. personal spending and retail sales in Norway.
Japanese industrial production
surprisingly rose by 1.8% m/m in October preliminary data released this morning show. Consumer price data showed inflation flat at 0%, which suggests further potential for strong monetary easing if the Bank of Japan (BoJ) is to reach its 1% inflation target. Meanwhile, Shinzo Abe, leader of Japan’s opposition Liberal Democratic Party, yesterday reiterated his call for the BoJ to print unlimited money until inflation reaches 2%. The Nikkei index is, at the time of writing, up 0.8% and the yen is weaker against most other currencies -- with EUR/JPY above 107 and USD/JPY back near 82.50.
U.S. Q3 GDP was revised higher yesterday to 2.7% from 2.0% q/q (annualised). While this may sound positive, composition is less favourable than previously though. Inventories spiked while final demand weakened, which together adds to downside risks to Q4 growth.
U.S. fiscal cliff talks remain the key short-term driver of the market. Treasury secretary Tim Geithner presented a plan to Congress, which is said to include U.S.D1.6trn in tax increases, U.S.D400bn in spending cuts, around U.S.D50bn in new spending and a lift of the U.S. borrowing limit. The initial response was not positive with Republicans in Congress who called it ‘completely unbalanced and unreasonable’. Both Democrats and Republicans still say that they are confident that a deal can be reached, which together with yesterday’s strong pending home sales perhaps explain why U.S. stock markets still managed to close higher -- with the S&P500 index up 0.4%.
Asian markets have opened higher with nearly all major stock indices showing gains. EUR/USD has moved back towards 1.30 and the positive sentiment continues on the European bond market. Spain’s 10-year bond yield is trading at an eight-month low and Italy yesterday auctioned five and 10-year bonds at the lowest yield in two years.
EUR/SEK has traded sideways around 8.65 overnight after moving higher yesterday on the GDP and retail sales report. GDP came out higher than expected by the market but -- as with the U.S. release -- details were weak and suggest downside risks to Q4. At the same time, disappointing retail sales were published.
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