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US Data Rocks, Europe Buys Paper, China Scissors Rates   November 17 - November 21
Fri, 21 Nov 04:09 PM EST/09:09 PM GMT
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US equity markets racked up their fifth consecutive week of gains and the S&P500 closed out Friday at another all-time high. Meanwhile the ECB launched its ABS program as Europe hovers at the very edge of full-blown deflation, Japan entered technical recession as it reported its second consecutive quarter of economic contraction, and the PBoC sprung a surprise rate cut on Friday to reassure China about its own economic problems. Preliminary November European PMI data was not encouraging, while the flash November HSBC China PMI data was just at the edge of contraction. Meanwhile in the US, October housing data was excellent, weekly jobless claims fell to their lowest level since 2000, and the Philly Fed business outlook index rocketed to its highest reading since 1993. For the week, the DJIA rose 1%, the S&P500 added 1.2% and the Nasdaq gained 0.5%.

The unexpected contraction in Japan's preliminary Q3 GDP data (-1.6% y/y, -0.4% q/q) drove the Nikkei down 3% on Monday and gave the excuse Japanese PM Abe needed to delay the planned sales tax hike. Abe said he would call early elections to cement his "three arrows" economic reform program. The yen continues to be a one-way ride, with USD/JPY rising from 115.5 to 119, another seven-year low for the yen.

China's PBoC responded to recent soft economic data by cutting its benchmark lending and deposit rates by 40 basis points and 25 basis points, respectively. Meanwhile, the deposit rate ceiling was increased to 1.2x the benchmark deposit rate. In a note, Goldman Sachs said while the move itself is unlikely to have much of an impact on the economy, it sends a very clear signal that Beijing is willing to loosen its policy stance to support the economy and its willingness to use a broad spectrum of policy tools, much as it did earlier in 2014. ...
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