Boxing Day Note

In thin trading conditions, the major currencies are little changed. The euro is straddling the $1.22 area. It has held above the low seen earlier this week near $1.2165. Since the low was seen, the reaction high has been limited to the $1.2250 area. For the third consecutive session, the dollar held above the JPY120 level.  It had reached a high earlier this week near JPY120.80.  

Sterling is hovering about half a cent above the low set on December 24 near $1.5505.  It has been capped near $1.5570.  The dollar-bloc currencies are trading slightly firmer, but well within recent ranges. 

Among emerging market currencies, the South Korean won is the strongest, gaining about 0.3%. This complete the third consecutive weekly gain.  Foreign buying of equities was cited. The Russian rouble is the weakest of the emerging market currencies today, losing about 1.7%.  However, earlier the rouble firmed to its best level since December 2. The government has taken steps to help banks and companies cope with the sharp depreciation of the rouble in servicing external debt obligations. Doing so has cost it $15.7 bln of reserves in the past week (~$4.6 bln in direct intervention and more than twice as much in the form of foreign exchange repos). The dollar is just below RUB53.00.  A week ago it was just below RUB60.00. 

European markets are closed for Boxing Day. Asian markets that were open mostly advanced, with the MSCI Asia Pacific Index up about 0.4%.  It is sufficient to break a three-week losing streak. Of note, the Shanghai Composite jumped 2.75% after yesterday’s 3.4% gain, retracing in full the recent losses, led by a 5.25% rise in financials. The spark was new stimulative measures. The PBOC will reportedly waive reserve requirements on some bank deposits, which some are estimating to be equivalent to 150 bp cut in the required reserves.  

The Nikkei eked out a minor gain, though the slew of economic data was disappointing. Specifically, industrial production, which was expected to have risen by 0.8%, fell 0.6%. The consensus expected retail sales to rise by 0.2%.  Instead, they fell by 0.3%. Overall household spending fell 2.5% from a year ago.  Core CPI fell to 2.7% from 2.9%. When adjusted for the retail sales tax, this measure of inflation that the BOJ targets, fell to 0.7%.