Markets Reverse Ending Three Days of Gains; DAX Seen in Tightening Range

Equity markets are lower on Tuesday (snapping a three day bullish run) after the Bank of Japan monetary policy meeting minutes produced a pessimistic policy statement and markets have started to anticipate a negative response to the Italian Treasury auction later this week.  Risk assets were lower with high yielding currencies selling off and most commodities pushing lower in the session.  Trading volumes remain thin even with the US stock markets re-opening, as the UK, Hong Kong and Australia are still closed for holidays.

Risks cited by the Bank of Japan were largely predictable, with the European debt crisis and the continued strength in the Japanese Yen (JPY) seen as the main areas for concern.  Other macro releases out of Asia came with disappointing consumer confidence survey out of South Korea and Chinese industrial profit data.  Later today, the macro focus will center on the US Home Price Index and the market is expecting declines for these figures as well.  After this, the next big event risk will be seen with this week’s Italian bond auction, where 9 billion Euros in 6 month treasury bills will be sold during the Wednesday session.

End of the year tallies for the major global stock indices are showing that markets have extended losses, for the most part, as the MSCI Asia Pacific Index is down 17 percent for the year, while the Stoxx Europe is down 12 percent.  These are the worst figures we have seen since 2008 but the one bright spot (if we can call it that) is the S&P 500, which is set to close the year with a 0.6 percent gain.

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