Asian stocks decline, Yen extend gains

Market Brief

The risk appetite decreased in the Asian stock markets, as the World Bank revised its Japanese and US growth forecasts to the downside, and predicted a second year of contraction in the Euro-Zone. Overnight, the Australian monthly consumer confidence improved to 0.6% from -4.1% previously. In Japan, yearly domestic CGPI increased to -0.6% (exp. -0.7%, prev. -0.9%), while November monthly and yearly machine orders surprised to the upside (m/m 3.9%, exp. 0.3%, prev. 2.6% & y/y 0.3%, exp. -7.3%, prev. 1.2%). Despite the suppportive economic data, the Nikkei 225 index slumped by 2.56%, as Yen extended gains versus all of its major counterparts for the second consecutive day. USDJPY slipped down to 88.00 level early in the session, while EURJPY tested 116.80 / 117.00 week-low. The World Bank halved its forecast for the Japanese growth, while the Chinese direct investment saw its first full-year decline since 2009. As cautious investors are focused on crucial economic data from China later this week, Hang Seng retreated 0.48%, Shanghai’s Composite lost 0.82%, while Kospi and Taiex index fell by 0.32% and 0.83% respectively. In US, the Empire Manufacturing disappointed by decreasing to -7.78 (vs. the revised -7.30, and the expected 0.00), while Advance December Retail Sales increased to 0.5% (vs. 0.2% exp. % 0.3% prev). The monthly PPI recovered to -0.2% from -0.8%, while the PPI ex-Food & Energy remained unchanged at 0.1%, indicating that the food and energy prices were the main drivers in December producer price differential. In reaction to the economic data, the S&P500 advanced by 0.11%, while Dow Jones industrial index and Nasdaq’s Composite index added 0.20% and 0.31% respectively. The US Dollar outperformed all of its major peers except Yen, while Gold and Silver surged to 1,685, and 31.50, January highs. In Europe, Juncker stated that the single currency is “dangerously high”. This is just further evidence that global policymakers are preparing for a broader “currency war”. We are seeing a clear trend of developed markets following the Emerging markets in attempting to control their exchange rate. At next week’s BoJ meeting we could see Japan bring a bazooka to the fight. While EURUSD retreated to 1.3264, EURCHF tested 1.2400 (highest quote since December 2011) , yet failed to advance further. Today’s agenda consists of Italian November Trade Balance, Euro-Zone m/m and y/y CPI, US Mortgage Applications, US m/m and y/y CPI, and US m/m and y/y CPI Ex-Food & Energy, the US Total Net TIC flows, the US Net Long-term TIC flows, US December Industrial Production and the US December Capacity Utilization.