EMU Looks To ECB

Overview: The ECB meeting is today's highlight. A dovish signal is expected. The euro remains pinned near its lows ahead it. The global equity market rally in January and February is faltering this week. Asian equities were mixed, but the Nikkei eased for the third consecutive session.  Although the Shanghai and Shenzhen Composites eked out small gains, the CSI 300 tumbled more than 1% to nearly halve this week's gains. Europe's Dow Jones Stoxx 600 is trading lower for a second session. The S&P 500 is taking a three-day losing streak into today's session, where it is poised to open lower.  The S&P 500 has fallen in six of the past seven sessions. US 10-year yields are lower for a fourth session. After rising 10 bp last week, the benchmark yields is seven basis points lower this week. Asian yields slipped, but European yields are slightly firmer. The foreign exchange market is calm. The dollar-bloc is consolidating yesterday's loss and posting small gains. While the greenback has a lower bias, sterling is struggling amid the growing realization that nothing has come from the EC-UK last-minute negotiations. 

Asia Pacific 

Nearly every day the media repeats the official claims that the US-Chinese trade talks are making progress. But details are lacking. All that seems to be agreed upon is China will buy more US goods (it looks like agriculture and energy, but higher-valued added goods, e.g., manufacturing are scarcely mentioned), and there will be monitoring discussions on various official levels. China will take some additional actions to protect intellectual property rights. It has officially indicated its policy is a stable yuan, which the US also seemingly wants. There may be scope for China to revisit its support for industry, but can one imagine China complaining that the US government ownership of the housing market, through the nationalization of Fannie and Freddie is an unfair encroachment in the private sector and distorts the competitive landscape? Or that the Export-Import Bank (sometimes derisively called the Boeing Bank) also gives an unfair advantage. We suspect that a trade deal may prevent an escalation of tit-for-tat tariffs but may not lead to a full dismantling of existing tariffs immediately.

Japan reported its leading economic indicator fell to 95.9 in January from 97.5 in December. It matches the low from May 2016. The economy is off to a weak start in 2019. Tomorrow, Japan is likely to announce that the economy grew a touch faster than the 0.3% estimate in Q4. Due to stronger business investment, Q4 GDP may have expanded at a 0.4% annualized pace (the same as Canada).Japan is also expected to report a small current surplus for January. It will mask a significant deterioration in its trade balance. The trade deficit is expected to swell to its largest in five years. The current account surplus is driven by investment income (interest/dividends/ royalties, licensing fees, etc.). Note that the US-Japanese trade talks are expected to formally begin later this month. 

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Read more by Marc on his site Marc to Market.

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