Comment – Sanjiv Shah

Asian stockmarkets are down and European and US stockmarkets are set to open lower. Bond Markets
are higher with 10 year US Treasury yields 8 bps lower at 2.25%. 10 year German Bund yields are 6 bps
lower. The Euro had fallen initially but has recovered and is currently relatively steady at 1.075 to the
US dollar.

Markets risk-off mood intensifies: The market’s actions are driven by the weekend attacks in Paris
and stocks are down while bonds (and gold) are catching a safe-haven bid. Asian equities are
currently lower on a broad based risk off move as we kick things off for the week. The Nikkei, The
Hang Seng and the KOSPI are down 1.0%, 1.5% and 1.5% respectively. China and India are bucking
the trend and are currently in positive territory. Chinese sentiment has been boosted by the IMF’s
conformation that the Chinese currency will be included in the SDR basket. Oil prices have risen
slightly after the sharp decline of last week. The WTI is currently trading at USD 40.85 per barrel.

CNY included in SDR basket. As expected, the IMF has recommended to the IMF Board that the
Chinese currency be included in the SDR as the fifth currency, along with the UK Pound, the Euro,
the Yen, and the U.S. dollar. The board will decide on 30th November but it will take another ten
months before implementation. This is an important victory for economic reformers within China who
had pressed for inclusion and argued that the market reforms need to achieve inclusion had to be
done. This will increase the power of the reformers within the party and the government.

Japan GDP Japan’s Q3 GDP data showed a decline of -0.8% (annualised) compared with
expectations -0.2% and confirms that the economy has entered into recession. This is the second
time this has happened since the election of the Abe government since December 2012. One of the
main factors behind this weakness was lower investment. This underlines the fact that Abenomics is
not working and more economic reform is needed. The markets will be looking at the Bank of Japan
(BoJ) policy meeting this Thursday. The odds of some further monetary easing and other policy
measures will have risen.

Sentiment will probably be weak in the short term and security issues will replace economic issues at
the G20 meeting in Turkey which started yesterday.

Risk Markets are opening lower in Europe and look set for a slightly negative day in the USA.

Latest Update: Dec 17, 2015