Daily Market Color December 20, 2016Stock Markets Hit Record Highs Following Bank of Japan Decision Bank of Japan Leaves Monetary Policy Unchanged In alignment with market consensus, the BoJ announced today that it will hold its benchmark interest rate steady at -0.1% and maintain the zero percent target range for the yield on the 10-year government bond, which includes an asset-purchase program of nearly 80 trillion yen per year. The central bank is not expected to change policy until inflation approaches its target level of two percent. BoJ Govern Haruhiko Kuroda did manage to surprise investors, however, when he announced an upgrade to the BoJ’s assessment of the economy for the first time since May 2015. The optimism for future growth in Japan was given support with the recent devaluation of the yen following the election of Donald Trump, which has pushed shares in Tokyo to their highest levels of the year and hinted at increased inflation potential in 2017. Prior to the US election the Japanese yen had gained 13% on the year against the dollar, but has since declined more than 10% to its current level of 117.85 JPY/$. Adding to the positive sentiment, the Japanese government updated its expected growth rate for the current year-end in March 2017 from 1.3% to 1.5%. Following today’s updates, Japan’s main index, Nikkei 225, closed up 0.53% for the day. Bailout for Italian Banks Making Progress The Italian government has taken additional steps forward in preparation for the possible additional cash infusion to the nation’s struggling banks. Today a plan was proposed to parliament to increase Italy’s public debt by as much as 20 billion euros ($21 billion). Public debt in Italy (2.23 trillion euros) as a percentage of GDP is already the second highest in Europe, behind only Greece. The nation’s oldest bank, Banca Monte dei Paschi di Siena SpA, commands the most immediate need for capital as it currently looks to sell 5 billion euros worth of convertible debt before year end. US Markets Withstand Geopolitical Tensions Investors in the United States seemingly shook off the global political tension that had been generated over the past few days that began with China seizing a US drone on Friday, followed by the assassination of a Russian ambassador in Turkey and a probable terror attack in Berlin that killed nine people yesterday. All three major US stock indices close up 0.35%-0.50% today as the DJIA hit another all-time closing high of 19,974 – inching towards 20,000. Oil prices similarly gained during today’s trading session after US reports revealed a drop in supply. WTI crude added 0.2% to $52.25/barrel while Brent crude rose 1.15% to $55.55/barrel. US Treasury prices were mostly lower on the day, with yields/swap rates jumping as high as 4-5 bps intraday before settling back to up 1-2 bps across most maturities.