Markets Quietly Edge Into FOMC Meeting

The global capital markets are subdued going into the FOMC meeting. The dollar is little changed. Equities are trading with a slight downside bias, while bond markets are firm. Italian bonds and stocks continue to outperform their European counterparts.  

There have been three new economic reports that add to the macro picture today: Japan’s Tankan survey, China’s credit figures, and the UK employment report.  

Japan’s Tankan survey results for large businesses were in line with expectations. The diffusion index for large manufacturers rose to 10 from 6.It is the high for the year, after having been stuck at 6 for the first three-quarters. It is expected to slip to 8 in March 2017.Large non-manufacturers’ sentiment was expected to edge up but was flat at 18.It is expected to slip to 16 in March. Sentiment among small companies posted small gains, which are expected to be short-lived as well.  

Perhaps the most disappointing part of the survey was the sharper than expected decline in capex plans. They were reduced to 5.5% from 6.3%. Capex plans in Q1 are often the weakest of the year.It has been the case for the past six years.If Q1 readings were excluded, today’s results show the weakest capex intentions since Q3 13. 

Japanese stocks were mixed with the Topix down slightly and the Nikkei up slightly. The Nikkei’s advancing streak extended to it seventh consecutive session.Most other markets in the region saw minor losses.Australia’s ASX200 was the notable exception, rising 0.7%. The MSCI Asia-Pacific Index eked out an ever so small of a gain.Of note, foreign selling of Indonesian equities continued to the 24th consecutive session. However, since December 1 the equity market gained almost 4.5%, but today’s 0.6% fall may have signaled a near-term top.