Brexit Drama Continues But Fed Moves To Center Stage

Overview: US stocks were not able to hold onto early gains yesterday, and this has helped set the stage for today's heavier bias. Asia Pacific markets were narrowly mixed, with Japan and Korea eking out small gains while China and Taiwan slipped a little. Europe's Dow Jones Stoxx 600 is threatening to snap a five-day advance as materials, healthcare, and energy leads the profit-taking while communication and real estate are proving a bit more resilient. Benchmark 10-year yields are little changed with peripheral European yields slightly firmer in this mild risk-off session. UK and US 10-year yields are 1-2 bp lower. The US 10-year yield struggles to hold above 2.60%. The US dollar is firmer against all the major currencies, with the apparent new threats of the UK leaving without an agreement weighing on sterling. 


Conflicting reports emerged yesterday about the progress of Sino-American trade talks. Some officials report that China is pushing back against US demands, especially apparently in intellectual property issues, which include pharmaceutical data, and patents. Other officials see it as part of the normal give-and-take of negotiations. US Trade Representative Lighthizer and US Treasury Secretary Mnuchin will go to Beijing next week and the following week Vice Premier Liu will return to Washington, D.C. for more talks.   

As a consequence of the US decision to pull out of the Trans-Pacific Partnership and the signing of other local free trade agreements puts US agriculture at a disadvantage into Japan. Japan faces pressure from the US in the trade talks to put US agriculture on similar footing. Agriculture is also one of the hotly disputed areas between the US and Europe. Europe wants to exclude most agriculture issues for the trade talks. 

The Japanese government echoed last week's decision by the Bank of Japan in lowering its economic assessment. It is the first time the Abe government is doing so in three years. Exports and industrial output were specifically downgraded, though it said the economy was continuing to recover at a moderate pace. The poorer assessment of industrial output for a second straight month, saying it was nearly flat. The Japanese economy appears to be contracting in Q1, as it did in Q3. It is by virtue of the economic weakness that Abe may decide to again postpone the sales tax increase planned for October 1,   

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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