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Divergence and other issues

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  • The Bank of Japan's Kuroda was declaring that the yen is not abnormally low, and that Japan can exceed its trend rate of growth (undefined) next year. The markets do not appear to agree with him, with the debate resolving into a question of when the BoJ will be forced to accelerate quantitative policy.
  • Euro area data is likely to emphasise the divergence within the economy, with German data pointing to ongoing economic health, while Italian retail sales continue to deteriorate. This is creating political tensions within the Eurozone at a time when unity would be a better outcome.
  • US House Speaker Boehner indicated that the House would pass a continuing resolution in January, and the government would therefore not shut down again. Of course the Tea Party fundamentalists are still a force, but there are grounds for assuming fiscal issues will not be a problem in the US in early 2014.
  • There were several monetary policy speakers yesterday. The Bank of England's Dale was suggesting that interest rates will remain low for a considerable period. Fed speakers were telling us nothing especially new, and the ECB's Asmussen reiterated the need for an effective banking union.

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