A little profit-taking in the Nikkei today ahead of the FED semi-annual address was to be expected but todays price fall was probably more than most expected. The Nikkei declined 1.15% in todays trading with more concerns over the alluded slowed down after Finance Minister (and deputy Prime Minister) Taro Aso remarked it may take time for bilateral dialogue. In Tokyo trading we also saw the JPY strengthen after news that US national security adviser Michael Flynn’s resignation pushed the safe-haven bid. China Producer Prices rose 6.9% beating estimates, while Consumer Price Index rose 2.5%. However, unlike the Nikkei both the Shanghai and Hang Seng indices closed little changed ahead of FED news. In late US trading and on the back of Janet Yellen’s comments the Nikkei futures has reversed all of the cash losses and stands higher by around 1.25% with the JPY mid 114’s.
In Europe three core indices (CAC, FTSE and DAX) all close around unchanged despite data from both sides of the channel. In the UK inflation numbers beat previous but again fell short of market expectations. CPI data came in at 1.8% up from the 1.6% previous release but the market had been pricing in 1.9%; hence a slight disappointment and no benefit to FTSE. Also in Germany annual GDP missed consensus (1.7% forecast was only 1.2%) but it did beat the previous 1.5% release; inflation and CPI were as expected. A little later we saw German ZEW which was also not so encouraging news. Forecast at 77.2 the release was 76.4 where previous was 77.3 – not so great. This is putting the ECB in a extremely difficult position. With the US outlook increasingly brighter and the stock markets making new highs can the ECB continue to be the buyer of debt at such low levels!
US markets were quiet until Fed Chair Janet Yellen began to speak and although bond traders did not like what they heard, the same cannot be said for equity traders. Stocks took their time but eventually buyers took the market to new highs on anticipation of tax reductions, infrastructure spending and reductions in regulations. It took a while for stocks to move but bonds went as soon as they see March is on the cards. The only concern now maybe will the FED act fast (with data) or are they happy to let the market run a little first! 10yr Treasuries gained 5bp and with it steepened the curve (2/10’s by 2bp) which in-turn helped bank stocks rally (financials index was stronger by over 1%).
US 2’s closed 1.22% (+2bp), 10’s 2.47% (+4bp) and Bunds at 0.36% (+3bp); closes US/Germany at +211bp. Italy 2.22% (+1bp), Greece 7.31% (+2bp), France 1.04% (+2bp), Turkey 10.59%. Portugal 3.99% and Gilts 1.31% (+2bp).