Equity Bounce Stalls While The Greenback Steadies At Lower Levels

Overview: Equities, bonds and the dollar are consolidating the moves seen earlier this week. This means equities are trading heavy and bonds firmer. The euro is paring gains that carried it to its best level (~$1.1570) since mid-October. After stalling near JPY109 in the last two sessions, the greenback slumped to almost JPY107.75 before finding a better bid.  Sterling remains capped in front of $1.28. The Canadian dollar and crude oil's eight-day rally is at risk.  

Asia Pacific

US-China trade talks in Beijing concluded, and both sides seem constructive. China appears to have agreed to buy more US agriculture, energy, and manufactured goods. However, this is low-hanging fruit as China had previously agreed to this before US President Trump rejected the agreement negotiated by Treasury's Mnuchin. The non-tariff barriers to trade, such as subsidies, and other structural reforms may still be sticking points. China's statement indicated that the foundation of a resolution is in place, which seems to be further than American statement went. Recognizing the challenge is with the operational policy not so much with the declaratory policy, the US appears to be looking for a timetable for other reforms and an ongoing surveillance/monitoring regime.  

Separately, China reported softer than expected price pressures, which are seen as consistent with the economic weakness. December consumer prices eased to 1.9% from 2.2% in November. The Bloomberg median forecast was 2.1%. Producer prices pressures evaporated. The year-over-year increase in December was 0.9%, the lowest since September 2016. It looks like the decline in energy prices and some reduction of taxes and administered prices were the drivers. Excluding food and energy, CPI was flat for the third month at 1.8%. In December, non-food prices were key, easing to 1.7% from 2.1%, food prices were steady at 2.5%. China is expected to continue to take new measures to support the economy. A cut in taxes for small businesses was announced yesterday.  

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Read more by Marc on his site Marc to Market.

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