This content is from: Portfolio

Daily Agenda: Markets React to Fed’s Upbeat Message

Bank of Japan announces no changes in policy; Russia continues to try and prop up its financial sector.

Investors have recalibrated expectations this week in the wake of the Federal Reserve’s December policy statement on Wednesday that saw widely anticipated language changes paving the way for eventual monetary tightening. The net impact of the news on market sentiment has been bullish, with the S&P 500 index reaching its highest one-day gain since January 2013. Adrian Miller, director of fixed-income strategy at GMP Securities in New York, wrote in a report for clients this morning, “Thursday was all about the market’s reaction to a positive message from the Fed and an initial bounce in crude prices that power global risk prices higher as credit spreads narrowed, bond yields rose and the U.S. dollar strengthened.” On a slow economic data day leading into the Christmas break next week, U.S. markets appear to be an increasing complacent mood despite storm clouds abroad.

Bank of Japan holds the course.Bank of Japan governor Haruhiko Kuroda and his colleagues reiterated in its monthly announcement today that the central bank’s easing campaign will continue at an annual pace of 80 trillion yen ($670 billion). In a press conference, Kuroda noted that lower oil costs may weigh on consumer price inflation early next year, making the bank’s target level harder to achieve. On a positive note, Kuroda also noted that exports are improving and that industrial production levels appear to have reached an inflection point.

Numbers out of Germany suggest macroeconomic improvement. GfK sentiment data released today registered stronger-than-forecast gains in confidence among German consumers. Separately, producer prices for November slightly beat forecasts, at a flat level for the headline index on the month despite weakening oil costs. This continues the trend of marginal improvement over recent weeks in German macro indicators.

French president discusses relief for Russia. In a press conference prior to yesterday’s European Union summit in Brussels, French President François Hollande raised the possibility of scaling back sanctions against Russia if that nation makes “gestures” indicating acquiescence to Western policy. U.K. Prime Minister David Cameron also discussed with reporters the possibility of easing sanctions, but cautioned that consensus among European leaders at the summit supported continuing sanctions until Russia made concrete changes in policy toward eastern Ukraine and other neighbors.

Legislation passed to help struggling Russian banks. The State Duma, Russia’s lower house of parliament, passed draft legislation that will clear the way for up to 1 trillion rubles ($16.8 billion) in additional capital for the weakened banks drawn from state coffers in the latest attempt by the Kremlin to stabilize the nation’s reeling finances. This news follows the easing of capital requirements and other controls announced earlier this week by regulators.

Headline-grabbing conviction handed down in Hong Kong. As the Hang Seng index rose by over 1 percent today, billionaire Thomas Kwok, co-chairman of Sun Hung Kai Properties, was convicted of bribing government officials in one of the highest-profile fraud cases in the Special Administrative Region’s history and the highest level prosecution yet pursued by the Independent Commission Against Corruption in its campaign against graft.

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