Weaker Commodities and Stocks, Firm Bonds, Mixed Dollar

European core and peripheral bond markets are highs, with yields slipping mostly 2-3 bp. No end to the political uncertainty in Spain, but Spanish 10-year bonds are matching regional performance. 

Equities have a heavier bias.  Asian shares were mixed.  The Nikkei rose 0.6% while the Shanghai Composite fell 2.6%.  Reports suggest that the anticipation of the end of the sales ban on large investors and a new IPO regime, weighed on Chinese sentiment. This is the biggest decline in a month for Chinese shares.   Weak industrial profits, especially among state-owned enterprises (-9.5%) also took a toll.    Asia markets open late, like India, Malaysia, Thailand and Indonesia advanced.    European equities are lower, with the Dow Jones Stoxx 600 off 0.25%, led by the energy sector, consumer staples, materials and financials.  Volume in Europe is about a third of the recent average.   An opening loss of around 0.3% is currently anticipated. 

The US dollar is mixed.   European currencies are a little firmer while the dollar-bloc is softer.  The dollar is also slightly higher against the Japanese yen.  Last week, the dollar eased against the Chinese yuan every day on a closing basis, but bounced back smartly today after the PBOC fixed it higher.  The close (CNY6.4873) represents a new four-year high.

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Japanese data disappointed.  November industrial output fell 1.0%, twice what the consensus expected. It was the first decline in three-months.   However, due to base effect, the year-over-year rate improved to 1.6% from -1.4% in October. The increase in the inventory ratio (2.9%) reflected a decline in shipments and an increase in inventories, which will have to run down later.   Retail sales fell 2.5% in November.  The Bloomberg consensus was for a 1.4% decline.  The year-over-year pace fell to 1.0% from 1.8%.   The data raises concern that the economy has yet to find traction even though the initial contraction in Q3 (after a decline in Q2) was revised away due to a pick-up in capex. 

The only US data today is the Dallas Fed's Manufacturing survey.  The Bloomberg consensus is for a -7.0 reading, a deterioration from -4.9 in November.   It has been negative all year, weighed down ostensibly by the energy-related activities.  It averaged -14.6 in Q2 and -10.0 in Q3.  Assuming a consensus report, it would average -8.2. 

The Indian rupee rose for an eighth consecutive session to a new five-week high.    The anticipation of new foreign inflows appears to be a key driver.  Starting with the New Year, India will give a higher quota (INR165 bln or ~$2.5 bln) for foreign purchases of sovereign and state-government bonds.   India bonds advanced for the third session, with the benchmark 10-year bond yield of 7.7%.