As a result of a solid rally in the US, on optimism that politicians will be able to come to an agreement on the fiscal cliff, we have seen Asian equity markets trade in positive territory mid-way through the trading day. However, things haven’t been plain sailing as at the start of the session France lost its prized ‘AAA’ rating at Moody’s, with the agency downgrading the country’s sovereign rating by one notch to Aa1; outlook negative. This translated into immediate EUR weakness and has capped somewhat the upside action in Asian asset classes as investors question whether this is a sign of things to come for the core European nations.
The Reserve Bank of Australia’s (RBA) November minutes did prompt immediate AUD weakness as the newswires snapped a dovish headline that the central bank considered more easing may be appropriate in the period ahead. However, the body of the minutes gave a more balanced tone with the board saying that they judged current monetary policy stance was appropriate for the time being and that further effects of previous rate cuts are yet to be observed. One interesting point to note is that the RBA will not be meeting in January and waiting until February may prove to long a wait for many of the banks board members.
Participants now await the Bank of Japan’s (BoJ) rate decision where they are expected to stand pat with no addition to the asset purchase program and no rate change. This decision comes as the political back drop in Japan is shifting with the opposition LDP leader calling for a change in Bank of Japan law so that the central bank can buy construction bonds, equating to direct funding of the deficit from the central bank.
In the equity space we see all indexes trading in positive territory as optimism over the US fiscal cliff situation continues. The out performer is the Heng Seng which trades close to its 10DMA at 21,458. Meanwhile, upside in the Nikkei 225 has been capped by profit taking ahead of the BoJ’s rate decision although the index in on course for a fifth day of gains. Finally, the ASX 200 has had a good session so far with the basic material sector leading the index higher.
Looking forward we anticipate the Bank of Japan’s rate decision shortly with no scheduled time having been released towards the end of the Tokyo session last month.
As of 0249GMT:
ASX200 (+0.55%), Nikkei 225 (+0.10%), Shanghai Comp. (+0.02%), Hang Seng (+0.88%), KOSPI (+0.55%)
20 Nov 2012 - 02:49 - Fixed Income - Source: RANsquawk
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