Brexit And US Stimulus Are Unresolved As Attention Turns To The ECB

 

Overview:  US threats to break-up Facebook (FB) and the stalled stimulus talks spurred profit-taking in US shares yesterday and is dampening enthusiasm today.  The MSCI Asia Pacific Index fell for the third time this week, and Europe's Dow Jones Stoxx 600 is little changed.  US shares are trading with a firmer bias now.  Ahead of the ECB meeting, new record lows in yields are being seen in Europe, and Italy's 5-year yield turned negative for the first time yesterday. Spain auctioned 10-year bonds today with a negative yield for the first time, and some buyers at the three-month bill auction in Australia also will receive a negative yield for the first time. The US 10-year benchmark is hovering around 0.92%.  The dollar is weaker against most of the major currencies.  The two notable exceptions are the yen and sterling.  The Antipodean currencies are leading today's move against the greenback.  Emerging market currencies are more mixed, with eastern and central Europe doing best.  The JP Morgan Emerging Market Currency Index is a little weaker for what could be the second consecutive losing session.  Gold remains on the defensive after falling by more than $30 an ounce yesterday, unable to rise above $1845, and pinned near the lows (around $1830).  Crude oil, on the other hand, shrugged off a 15 mln barrel surge in US inventories, the most in eight months, and February WTI is hovering just below $46 a barrel. (OIL

Asia Pacific

China is retaliating against the US by sanctioning diplomatic passports and revoking visa-free travel to Hong Kong and Macau.  Starting tomorrow, it will also begin collecting extra duties on Australian wine, on top of the temporary anti-dumping duties announced last month.   Australia, and to a less extent, Canada are being punished by China for essentially being US allies. 

Japan reported producer prices were flat in November and off 2.2% year-over-year.   Producer prices have not been positive in Japan since February.  They rose by 0.9% in December 2019 and 1.4% in December 2018.  Separately, note the divergence in estimates for growth.  The government is optimistic that with the latest stimulus efforts, the economy can grow by more than 3% in the next fiscal year that begins April 1.  Most private forecasts are for around 1%.    Lastly, we note that the weekly MOF portfolio flow data shows Japanese investors have stepped up their purchases of foreign bonds.  Last week was the fourth week of the past five that more than JPY1 trillion of foreign bonds were bought.  The five-week average of nearly JPY1.2 trillion is the highest since early March, which itself was a four-year high (FXY).  

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Read more by Marc on his site Marc to Market.

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