Overview: The S&P 500’s largest advance in three weeks helped extend the recovery in Asia and European equities. All the equity markets in Asia rallied, led by the Nikkei’s 1.8% gain, except for China, were modest losses were recorded. The MSCI Asia Pacific Index has gained in six of the past seven sessions. In Europe, the Dow Jones Stoxx 600 is reaching its best level in nearly a month with a 0.6% gain in late morning turnover. It is the seventh gain in the past nine sessions. Benchmark 10-year bond yields are mostly one or two basis points higher, though Italian bonds are underperforming. The dollar itself is narrowly mixed against the major currencies ahead of the results of the FOMC meeting. The Swedish krona is the strongest of the majors (~0.4%), boosted by comments from the central bank governor indicating that a rate hike could be delivered as early as next month, though many see February as a more likely time frame. Among emerging markets, the volatile Turkish lira and South African rand are nursing 0.6%-0.8% declines, while the most active EM currencies, the Chinese yuan and Mexican peso are fractionally lower (-0.15%).
Asia Pacific
The central bank of New Zealand kept the cash rate unchanged at 1.75% as universally expected. RBNZ Governor Orr reiterated that while the next move in interest rates could be in either direction, he did not anticipate a change next year. The New Zealand dollar’s upside momentum that carried it above $0.6800 yesterday stalled near a retracement objective of this year’s decline. An NZD1.0 bln option struck there expires today. It is over-extended and trading above its upper Bollinger Band that is set two standard deviations above the 20-day moving average (~$0.6765) A break of the $0.6750 would be an early indication the high may be in place.
China reported strong October trade figures. Exports rose 15.6% while imports surged 21.4% from year-ago levels. This compares with median forecasts in the Bloomberg survey of 11.7% and 14.5% respectively. This resulted in a trade surplus of $31.3 bln after $34.0 bln in September. It appears that China and its customers are front-loading orders to beat the tariffs and this is also ahead of the increase in the tariff on $200 bln of goods from 10% to 25% on January 1. Also, the US has threatened to put a levy on the remaining roughly $250 bln of Chinese goods that have yet to be hit by the Trump tariffs. China’s exports to the US rose 13.2%, representing small pullback from the record set in September, while imports from the US fell for the second month. China claims a bilateral surplus of $31.8, down from the record $34.1 bln in September, though how it calculates trade with Hong Kong may understate it. Many economists are forecasts a sharp fall in Chinese exports next year.
