Especially the Japanese market is hit with Nikkei down 2.7%

Market movers today

Focus continues to be on the oil market and the potential repercussions on Emerging Markets. Following a strong rally in risk assets profit taking has set in as year-end approaches.
It is a very boring day on the global data front. Only release is French industrial production. We look for a rise of 0.5% m/m, a little higher than consensus of 0.0%. Production has been soft in the past months but improvement in surveys suggest we could see a slight increase.
In Scandinavia, it is time for November’s inflation data from Norway and Denmark. Moreover, Danmarks Nationalbank will release its Q4 monetary review, including a new economic forecast and the H2 Financial Stability report. For more on Scandi markets see page 2.

Selected market news

Investor appetite for risk assets remains low and both S&P500 and the Dow Jones industrial index ended the day slightly lower in a very quiet session in the US. Yields on 10-year US treasuries declined 4bp to 2.214%, which is lower than before Friday’s release of the stronger-than-expected US labour market report. Yields on US government bonds with shorter maturities still trade higher compared to the end of last week and the 10Y2Y US yield curve flattened further yesterday with 2-year government bonds declining less than 2bp.

In Asia this morning, most regional equity indices also trade lower. Especially the Japanese market is hit with Nikkei down 2.7% and the JPY has appreciated against the USD with USD/JPY trading around 118.75.

Chinese inflation fell to 1.4% y/y in November from 1.6% y/y in October. This is the lowest pace of increase in consumer prices since 2009 and less than the consensus expectation of unchanged inflation at 1.6% y/y. The decline in prices appears to be broad based with food prices rising 2.3 y/y, down from 2.5% in October, while non-food prices slowed to 1% y/y, down from 1.2% y/y. Chinese producer prices declined further in November and fell 2.7% y/y, down from -2.2% in October as lower commodity prices weigh on factories’ output prices. All in all, deflation risks seem to have increased in China - especially given the very broad-based slowdown in prices - and it could potentially trigger further rate cuts from the central bank in order to curb real interest rates.

The IMF warns about a USD15bn shortfall in its bailout for Ukraine as the fiscal gap has increased due to a 7% contraction in Ukraine’s GDP. According to an article on FT.COM, the IMF says that the funding gap will need to be covered within weeks to avoid financial collapse.

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