Market movers today
We have a very thin calendar ahead of us today with virtually no significant data release in any of the major economies.
There will be some focus on the Catalan regional election taking place today. The election was called by Spanish Prime Minister Mariano Rajoy in October after the invocation of Art icle 155 of the Spanish Constitution of 1978, declaring the entire Catalan government removed from office. The last opinion polls showed a race too close to call with the main unionist and separatist parties were running neck and neck.
Today, the Czech Republic’s central bank (CNB) will announce its decision on the policy rate. The CNB delivered a 25bp hike at its November meeting but , as this was anticipated by the market , we believe it is more important to watch out for the CNB’s next step. Given some slightly disappointing data releases recently, we maintain the view that the CNB will keep rates unchanged at its 21 December meeting but move on with additional hikes in 2018. For more details on our latest views on key emerging markets, please see our latest Emerging Market Briefer which was published yesterday.
Selected market news
The Asian markets are mixed this morning despite the progress on approving tax cuts in the US. Yesterday, the House of Representative passed the tax reform, meaning the final tax bill now only needs Trump’s signature before taking effect . Focus is now shifting to passing a shortterm government funding bill before the current funding expires on Friday. We expect Congress to pass the short -term funding bill, which would keep the government running until sometime in mid-January.
This morning, the Bank of Japan (BoJ) kept its monetary policy unchanged today as widely expected; hence it maintained its short-term policy rate at -0.1% and its target for the 10-year yield at around 0%. The decision was taken with an 8-1 vote with Goushi Kataoka once again dissenting, arguing that the BoJ should be ready to do more if inflation disappoints. There were a few minor tweaks in the statement although the BoJ became slightly more upbeat on the Japanese economy. However, this is unlikely to change the policy mix, especially as inflation pressures remain weak. In our main scenario, we still expect Haruhiko Kuroda to be reappointed when his current term as governor ends in April, while we believe the BOJ will keep its current ‘QQE with yield curve control’ policy unchanged in 2018. Market reaction in USD/JPY on the initial statement was limited.
In China, at the at the annual Central Economic Work Conference in Beijing, economic policy makers agreed to ‘fight the battle of preventing and resolving major risks, with a focus on preventing and controlling financial risks’. Policy makers did not repeat language on out right deleveraging from the previous two years, but instead focused comments on risk in the financial system.
