USD Lower Amid Increased Risk Aversion

Market Reviews

Risk aversion has increased significantly on the world's financial markets. New Zealand dollar is trading as the strongest one for today, together with Japanese yen. New Zealand dollar has grown strongly due to data on sentiment in the business environment. New Zealand ANZ Business Confidence rose to -24.1 in December, up from -37.1. Euro, Swiss franc and US dollar are the weakest ones.

On stock markets, US stock indices, having lost more than 2%, fell to the year’s lows, which were reached in February. DOW lost 2.11% to close at23592.98. S&P 500 declined 2.08% to 2545.94. NASDAQ lost 2.27% to 6753.73. Nikkei dropped 1.64% to 21115.45. Singapore Strait Times lost 2.05%, Hong Kong HSI fell 1.03% and China Shanghai SSE dropped 0.82%.

On bond markets, US 10 year yield dropped -0.034 to 2.857. Yield curve is inverted between 2-year (2.696) and 3-year (2.683). 5-year yield is not far away at 2.692. Japan 10 year JGB yield is down -0.0126 at 0.024.

Further market sentiment will depend on the outcome of the Fed meeting, which will end tomorrow. According to average forecasts, the Federal Reserve will raise the target range for the federal funds rate to 2.2-2.50% at its last meeting in 2018. But more important will be the predictions of the regulator regarding the further rate of rate increases.

Markets are focused on the situation around the UK exit from the EU. On the eve, the British Prime Minister Theresa May announced that the vote, which should be approved a deal to withdraw the country from the European Union, will be held on January 14. Earlier voting was scheduled for December 11, but then the head of government canceled it due to lack of support from parliamentarians.

Japan’s Cabinet Office lowered fiscal 2018 and 2019 growth and CPI forecasts notably. The Japan's government expects the economy will grow 0.9% in fiscal 2018, which ends in March, down from its previous projection of 1.5% growth. In fiscal 2019 the GDP will expand 1.3%, down from the previous forecast of 1.5% gain. Overall consumer prices are expected to grow by 1.0% this fiscal year, down from a 1.1% gain expected previously. In fiscal 2019, overall prices will rise 1.1%, down from the previous forecast of a 1.5% growth.