Euro Pares Yesterday's Losses And Sterling Pulls Back After Topping $1.31

Overview: The US dollar is paring yesterday's gains against most of the major and emerging market currencies. Sterling pushed above $1.31, an 11-week high on news that the DUP would support Prime Minister's Plan B that calls for limits on the backstop with Ireland, something that the EC and Ireland have indicated are not on the table. Global equities are finishing the week on a firm note. Nearly all the markets but India rose in Asia while in Europe, the Dow Jones Stoxx 600 gapped higher, as it did a week ago, to see its best level since December 4. If modest gains can be retained today, the benchmark will close higher for the fourth consecutive week. The S&P 500 comes into today off about 1% for the week, threatening to end its three-week advance.  

Asia Pacific

Japan reported Tokyo CPI figures for January, which are reported a month ahead of the national figures and is often seen as a lead indicator. Headline CPI rose by 0.4%, twice the median forecasts and follows the upward revision in the December series to 0.4% from 0.3%. The core rate, which excludes fresh food, rose 1.1% compared with 0.9% previously. It was expected to be unchanged. Although this was an upside surprise, the market did not seem to react much.  In the middle of the week, the BOJ has shaved its growth and inflation forecasts.  

India's high court upheld a law that in essence prevents business founders from regaining control of the failed business. This is seen helping banks resolve the bad loan burden, which is estimated at around $210 bln, according to reports. There is an important case from a steel company coming up shortly for which today's ruling may impact.  

China announced a new facility to jump-start credit expansion. It allows Chinese banks to swap perpetual bonds for central bank bills. Perpetual bonds with ratings of at least AA can be used as collateral, as well, for borrowing from other lending programs at the central bank. Approval was given to the Bank of China in the middle of January for a CNY40 bln (~$5.9 bln) perpetual bond offering. Perpetual bonds sound like a way forward but the proceeds count as tier one capital (equity), and a capital buffer must be established to cushion losses.

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Read more by Marc on his site Marc to Market.

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