Speaking at the University of Baltimore's midyear commencement ceremony on Monday, U.S. Federal Reserve Chairwoman Janet Yellen said that the U.S. labour market had improved to its strongest in nearly a decade, suggesting that wage growth was picking up. The Federal Reserve raised rates for the second time in a decade Wednesday, and surprised by forecasting three rate hikes for 2017, more than the consensus two.
Data on Thursday, including the third estimate of third-quarter gross domestic product and personal income and spending, will next be watched for further indications about the strength of the U.S. economy.
The dollar bounced back towards 14-year highs on Tuesday, boosted by Yellen's comments. There is movement of capital out of emerging markets back into America, causing currencies to depreciate versus the dollar, which in turn makes more assets move out.
The US dollar index, which tracks the dollar against a basket of six major counterparts, continued to increase, climbed 0.20% to 103.36. Last week it advanced to 103.56, its highest level since 2002, when the US Federal Reserve raised the interest rate by a quarter-point and indicated a more hawkish stance towards future rate rises than expected.
Bank of Japan offered a brighter view on the economy after keeping monetary policies unchanged. Interest rate was held at -0.1% and the asset purchase program was also kept unchanged under the yield curve control framework. The central bank noted in the statement that "Japan's economy continues to recover moderately as a trend", with consumption "moving on a firm note".Though, CPI is expected to be "slightly negative or about 0% for the time being. BoJ also noted that risks to the outlook including development in "emerging and commodity exporting economies", particularly China; developments in US; and Brexit. Separately, the Japanese government projected the real GDP to grow 1.5% in the year starting next April, revised up from prior projection of 1.2%. Nominal GDP growth is projected to be 2.5%, up from prior projection of 2.2%. CPI is forecast to be at 1.1%, down from prior estimate of 1.4%. Meanwhile, the initial budget for next fiscal year is JPY 97.5T, a mild 0.8% from the current year.
RBA minutes for the December meeting warned of the high levels of household debt due to low interest rates. The central bank left its cash rate unchanged at 1.5% this month. As suggested in the minutes, "over recent years, the board had sought to balance the benefits of lower interest rates in supporting growth and achieving the inflation target with the potential risks to household balance sheets
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Among Asian bourses
Nikkei gains on BoJ economic outlook upgrade
The Japan share market closed stronger after a volatile trade, aided by yen depreciation against greenback after the Bank of Japan upgraded its view of the world's third largest economy. Japanese equities started the day in the red, but they bounced back in afternoon trade as the Bank of Japan's decision led to a weakening of the yen -- a plus for Japanese shares. Japan's central bank said it would maintain its loose monetary policy, as expected, and added that the economy was "likely to turn to a moderate expansion". It also noted exports and industrial production were gathering steam, after saying they were "sluggish" in a November statement. It was the first time the bank has upgraded its assessment of the economy in more than a year. The benchmark Nikkei 225 index inclined 0.53%, or 102.93 points, to 19494.53. The broader Topix index of all first-section shares added 0.21%, or 3.30 points, to finish at 1,552.36.
The Bank of Japan on Tuesday left rates unchanged and raised its inflation expectations, saying that the world's third-largest economy "has continued its moderate recovery trend." The central bank also raised its assessment of exports and industrial production. The bank kept its short-term rate target at minus 0.1% and its 10-year Japanese government bond yield target at around zero. It also said it would continue to buy Japanese government bonds at the previous pace of around 80 trillion yen a year.
The government said on Tuesday the country's economy was projected to grow 1.5% in the fiscal year starting April thanks to an uptick in the global economy and a recent weakening of the yen against the dollar. The government estimates fiscal year 2016 growth at 1.3%.
Industrial stocks gained on expectations of stronger growth. Equipment maker SMC ended up 0.7% at 28,580 yen. Shares of Japanese precision equipment exporters were also higher on a weaker yen. Components maker TDK's shares reached 0.6% at 8,400 yen and electronics maker Sharp ended up 2.6% at 237 yen.
Financial institutions caused some of the biggest drags on the Nikkei with the Topix banks subindex closing lower 1.02%. Nomura Holdings was lower 1.29% at 726 yen while Daiwa Securities Group ended down 0.98% at 751.6 yen.
Australia Stocks close at 16-month high
Australian share market finished session at 16 months peak, aided by the central bank optimistic view despite a run of soft data. Most sectors advanced, with banking and consumer stocks taking the spotlight. Minutes from the Reserve Bank of Australia's board meeting released on Tuesday indicated the central bank is cautious optimism for the country's economic prospects, although it also showed some concerns over low wage growth. At the closing bell, the benchmark S&P/ASX 200 index inclined 29 points, or 0.52%, to 5591.10, while the broader All Ordinaries index added 27.20 points, or 0.48%, to close at 5640.
The Australian government on Monday had forecast a A$10 billion deterioration in its budget deficit over the next four years. Major rating agencies Fitch and Moody's, however, placated investor fears by noting the forecast was consistent with a triple-A rating, while Standard and Poor said the budget update had no immediate impact on its AAA rating.
The retail sector posted strong gains with Coles supermarkets owner Wesfarmers up 47 cents, or 1.1%, at A$42.29, and rival Woolworths 41 cents, or 1.8%, higher at A$42.29. The Commonwealth Bank's Business Sales Indicator, released overnight, found spending across the economy has grown at its fastest rate in seven years in the lead-up to Christmas.
The big four banks also closed higher with Commonwealth Bank up 84 cents, or 1.03%, at A$82.27, National Australia Bank 32 cents, or 1.06%, higher at A$30.40, ANZ adding 19 cents, or 0.63%, at A$30.12, and Westpac gaining 16 cents ,or 0.49% to A$32.49.
Basic materials and energy stocks, on the other hand, suffered from weakened commodity and placid oil prices. Global miner BHP Billiton declined 18 cents, or 0.72%, to A$24.91, Rio Tinto was down 29 cents, or 0.49%, A$59.26 and Fortescue Metals was 6 cents, or 1%, lower at A$5.94. Oil major Woodside Petroleum shed 16 cents to A$30.94, Oil Search dropped 9 cents, or 1.3%, to A$6.81 and Santos fell 1 cent, or 0.25%, to A$3.97.
Liquidity woes weigh on China stocks
Mainland China stock market declined for third straight session, touching a six-week low after government authorities tightened regulations to prevent financial risks and asset bubbles. The central bank said on late Monday it would tighten supervision of shadow banking businesses by including off-balance sheet wealth management products, widely viewed as a source of financial risk, into its risk-assessment framework next year. The move represents another step by Beijing to rein in speculative credit growth in an effort to prevent asset price bubbles. Adding to pressure was a turbulent bond market, with China's 10-year treasury futures for March delivery plumbing a record intraday low, raising persistent concerns over liquidity stress. Most sectors lost ground, led by banks and properties. Gains were only seen in infrastructure shares. The Shanghai Composite Index fell 0.49% to 3,102.88, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 0.14% to 1,981.32. The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, added 0.1% to close at 1,982.30 points.
China's central bank said on late Monday it would tighten supervision of shadow banking businesses by including off-balance sheet wealth management products (WMPs), widely viewed as a source of financial risk, into its risk-assessment framework next year. The move represents another step by Beijing to rein in speculative credit growth in an effort to prevent asset price bubbles.
Risk appetite was also curbed by persistent weakness in the bond market. The price of China's 10-year treasury futures for March delivery touched a record intraday low on Tuesday.
Hong Kong Stocks fall to five-month lows
The Hong Kong stock market finished down on Tuesday, 20 December 2016, touching five-month lows, hurt by weakness in mainland companies listed in the city. Chinese markets fell after Beijing's move to tighten supervision of shadow banking activities on Monday and persistent liquidity concerns restrained risk appetite. Sector performance was mixed, with gains in telecommunication stocks cancelled out by losses in financial stocks. Hong Kong's benchmark Hang Seng Index declined 0.47% or 103.62 points to close at 21,729.06. The Hang Seng China Enterprises Index, known as the H-shares index, ended 1% or 94.02 points lower at 9,283.41. Turnover reduced to HK$53.7 billion from HK$55.8 billion on Monday.
Market heavyweights were mixed. China Mobile (00941) put on 1.55% to HK$81.85, while HSBC (00005) dipped 1.96% to HK$62.5 after the company announced completion of shares buy-back.
CK Property (01113) sank 2.01% to HK$48.7, making itself the top blue-chip loser. HK Electric-SS (02638) fell 2.62% to HK$6.32 after Daiwa downgraded the stock to "underperform" and cut its target price to HK$5.9.
Hong Kong's overall consumer prices rose 1.2% in November over the same month a year earlier, remaining virtually unchanged as compared to October, according to the Census and Statistics Department. Netting out the effects of all Government's one-off relief measures, the year-on-year rate of increase in the Composite CPI (i.e. the underlying inflation rate) in November also remained virtually unchanged at 2.1% as compared to October.
Nifty slides to near 4-week closing low
The two key benchmark indices viz. the S&P BSE Sensex and the Nifty 50 index registered yet another session of losses, continuing with their recent trend. The Sensex lost 66.72 points or 0.25% to settle at 26,307.98. The Nifty fell 21.95 points or 0.27% to settle at 8,082.40.
Amid weakness in pharma sector as a whole, drug major Cipla dropped more than 1% shrugging off its announcement to seek shareholders' approval to raise up to Rs 4000 crore via issue of securities in both domestic and global markets. Another pharma major Sun Pharmaceutical Industries declined as the company said one of its wholly-owned subsidiaries has voluntarily requested the United States Food & Drug Administration (USFDA) to withdraw approval for 28 abbreviated new drug applications.
Singapore Stocks End On Flat Note
Singapore stocks ended on a flat note today. Global cues were muted and the strength in US dollar mostly kept the overall undertone in risky assets subdued. Dollar rose on safe haven buying after the Russian ambassador to Turkey was shot and killed as he gave a speech in an art gallery in the Turkish capital Ankara. Geopolitical tensions rose further as a truck has rammed into a crowd close to a Christmas market in the German capital Berlin, killing 12 people and injuring around 50 individuals. The Straits Times Index (STI) ended 1.77 points or 0.06% lower to 2911.31.
The top active stocks today were DBS, which declined 0.85%, Singtel, which closed unchanged, UOB, which gained 0.29%, Keppel Corp, which declined 0.50% and Ascendas REIT, with a 0.43% fall. The FTSE ST Mid Cap Index declined 0.09%, while the FTSE ST Small Cap Index declined 0.62%.
Elsewhere in the Asia Pacific region: New Zealand's NZX50 added 0.05% to 6789.67. Indonesia's Jakarta Composite index shed 0.57% to 5162.48. Taiwan's Taiex edged up 0.03% to 9242.41. South Korea's KOSPI index was up 0.17% to 2041.94. Malaysia's KLCI was tad higher 0.01% to 1634.522. Singapore's Straits Times index fell 0.06% to 2911.31.
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