Global Market Key Points
Economic indicators in the U.S. were limited yesterday; the dollar recorded a sharp 1.2% decline versus a 6-major-currency index and weakened as much as 1.5% versus the euro. The Federal Open Market Committee (FOMC) – the policy-making arm of the Federal Reserve Bank will meet today to announce the Fed’s monetary policy for the coming month. The FOMC is expected to remain the Fed funds rate unchanged at a 0-0.25% range. Fed’s Chairman, Ben Bernanke hinted recently that given a 26-year high record of unemployment rate (jumped to 9.8% in November) the Fed might consider to enlarge the $600 billion bond-purchase program. But taking into consideration that the second quantitative easing program was announced and adopted only a month ago, there’s a reasonable possibility that the FOMC will wait further before it decides to enlarge its lending program, as it needs more time to assess its monetary plan’s impact on the markets.
Over the weekend China reported that CPI inflation accelerated to 5.1% in November and PPI inflation jumped as high as 6.1%. As a result the People’s Bank of China decided on Friday to raise the Reserve Requirement Ratio (RRR – the amount banks must hold in their reserve) by 50 basis points for the sixth time this year in order to pump money out of markets and to restrain somewhat inflationary pressure. Backed by monthly 13.3% rise in industrial production and a monthly 18.7% rise in retail sales, investors anticipated that the central bank in China will also decide to raise interest rate but Chinese policy makers eventually opted to remain rates unchanged. It means that investors are now less concerned that higher interest rate would soften Chinese economic growth and the global recovery consequently.
yesterday after falling sharply on Friday as Chinese policy makers decided to remain interest rates unchanged. Gold is very sensitive to any economic development in China as China is the world largest gold producer and the second largest gold consumer, and yesterday’s rally was mostly due to investors’ appeal to gold as an asset rather than a safe-haven. Gold spot added yesterday $15.52 (1.1%) and closed at $1,396.10 an ounce but couldn’t cross the $1,400 level while futures contract for February delivery was traded yesterday as high as $1,400.20 an ounce but closed up $13.10 at $1,398 an ounce making 1% daily gain. Silver spot made yesterday 3.9% gain and closed at $29.575 an ounce while futures contract for March delivery gained 3.6% and settled at $29.62 an ounce. Platinum futures for January delivery added $22 (1.3%) and settled at $1,697.30 an ounce.
After six month at his office and nearly two months of declarations, the Japanese Prime Minister instructed to reduce Japan’s corporate tax by 5 percentage points, starting from the beginning of the next fiscal year, aimed to hit CPI deflation, boost business activity, support employment conditions and stimulate economic growth. Japan’s corporate tax is one of the highest in the world; currency 40.69%. But implementing this decision may burden the country’s public debt which amounts to nearly 200% of GDP – the largest public debt among developed economies. Today results of the Bank of Japan’s quarterly Tankan Survey, measures business activity will be published for both manufacturing and non-manufacturing sectors.
CPI inflation for November will be released soon in the U.K. Analysts forecast that inflation will come-in at 3.1% annually following 3.2% in October. Yesterday, the Bank of England’s Deputy Governor said that the bank may need to pump more money into the markets in case the economy shows signs of deceleration or in case financial crisis in Europe will severe, stating that the bank is also obligated to price stability, and therefore said that there is a certain possibility that the bank will undertake a second round of quantitative easing in case inflation prospects are slowing.
Major Currencies Cross Rates
Sophie J. Fletcher
Head of Research
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