In thin holiday markets, a correction to the trends seen in Q4 has materialized. The US dollar is heavy. Japanese and European equities are lower. Bonds are firmer. Â
Some reports try to link the moves to the unexpected weakness in the US pending home sales, but this is a stretch and merely seeks to construction a post hoc explanation for the year-end position adjustments. Pending home sales is not a report that moves the market. The 2.5% decline in November is the fourth largest decline of the year, and the other three did not seem to spur a market reaction. Moreover, the dollar remained firm until after European markets closed yesterday. In fact, the euro reached its low near $1.0370 several hours after the US report. Â
US equities fell yesterday, with the S&P 500 posting its largest decline in a couple of months. The Dow Jones Industrials were turned back again ahead of the psychological 20k level. Japan, Chinese and Taiwanese equities fell, but most other markets in Asia rose, and this was sufficient to lift the MSCI Asia-Pacific Index by a quarter of a percentage point for the second consecutive session, ending a six-day slide. Of note, Indonesian equities have continued to recover. The markets three-day advance has lifted the bourse by 5.2%. Recall foreigners were consistent sellers of Indonesian equities from early November through the middle of December. Foreign investors are re-weighting Indonesian exposure and have been net buyers for a sixth session through yesterday, and were seen as buyers today, though the final data has not been reported.  Â
European equity markets are mixed, but mostly lower, with the Dow Jones Stoxx 600 off about 0.25%. Financials and materials are the weakest sectors today, while health care, telecoms, and real estate are posting gains. Yesterday it closed at its highest level of the year.  The Stoxx 600 bank index is off 0.8% today. Italian bank shares are off around 0.6%, falling for the third session, and likely setting the stage to snap a four-week 25% rally. Â
