Asian Markets Are Mixed This Morning

Market movers today

We have a fairly quiet start to the week, which will be dominated by the Bank of Japan meeting (decision due to be announced tomorrow morning) and the ECB meeting on Thursday. See our expectations in our respective previews: BoJ preview, 17 January, and ECB preview, 19 January. On the BoJ meeting, we expect it to keep its ‘QQE with yield curve control’ policy unchanged, while Governor Haruhiko Kuroda should downplay the significance of daily market operations and repeat the BoJ’s commitment to the current yield curve control. Looking ahead, we think it will keep its policy unchanged in 2018, assuming Kuroda is reappointed when his term ends in April.

Given the few data releases today, investor focus will be on the political developments in the US and Germany. In the US, investors will focus on the implications of a shutdown of the US government on Friday, as the US senate failed to pass a short -term funding measure (see here).

In the Germany, investors are likely to price in an increased likelihood of a grand coalition following SPD members yesterday giving their support for the party leadership to open formal coalition talks with the CDU/CSU on forming a new government .

Market movers today

Asian markets are mixed this morning with China slightly up while Japanese shares are down. This follows a weekend of significant political developments on both sides of the At lantic. In the US, members of congress have sought to break the stalemate that followed the failure to pass the short -term funding measure to keep the US government open. It is difficult to predict how long the US government shutdown will last, al though our base case is that it will find a solution fairly quickly. This should limit the economic damage: During the last closure of government in Q4 13 (more precisely from 1-17 October that year), GDP growth was lowered by about 0.3 percentage points, as federal workers were sent home, according to a BEA analysis. The USD was little affected over the weekend by the government shutdown.

In Germany yesterday, the Social Democrats (SPD) voted `yes’ to pursue coalition talks with Angela Merkel’s conservatives , moving one step closer to a stable government after months of political uncertainty. SPD delegates voted by 362 to 279 to move ahead with negotiations after the centre-left party’s leaders agreed a preliminary coalition blueprint with Merkel’s conservative bloc earlier this month. There was one abstention. Her party is due to recommend the resumption of coalition talks as soon as today.

Over the weekend, Spain was upgraded to ‘A-‘ by Fitch due to the improved growth and debt out look, as Catalonia was not seen to have had a big economic impact so far. We expect that Spain will launch a new 10y benchmark next week and look out for a strong demand and tight price.