Greenback Remains Firm - Tuesday, Feb. 5

Overview: The US dollar is little firmer against most of the major currencies. Despite some disappointing data (retail sales, trade, PMI), the Australian dollar has recovered from initial losses below $0.7200 on the back of the central bank's reluctance to adopt an easing bias. A small upward revision in the eurozone's flash service and composite PMIs help steady the euro after it neared $1.14. Most Asian markets remain closed for the Lunar New Year, but the Topix (though not the Nikkei) Australia, Hong Kong, and India edged higher. European shares are firm, with the Dow Jones Stoxx 600 extending its gains for the sixth consecutive session, led by energy and financials. Yesterday's the S&P 500 extended its gains for the fourth session. Benchmark 10-year yields are mostly a little firmer, though Portugal (the favorite of many) and Italy are bucking the trend.  

Asia Pacific

There is one main story from the region today, and it is Australia. The Reserve Bank met and did not gratify some market calls that it adopt a less hawkish stance. The RBA is sensitive to the link between housing and consumption, but not sufficiently, apparently, to elicit a policy response. The link was evident in the disappointing retail sales. They were expected to be flat in December and instead fell 0.4% after the November series was revised to 0.5% from 0.4%. The January composite PMI was revised to 51.3 from 51.5 (flash)  It averaged 53.6 in 2018. Australia also reported a sharp widening in the trade deficit from a revised A$2.26 bln shortfall in November to A$3.68 bln in December. The somber economic readings might not explain why the market jumped.  Australia's equity rally was led by financials, where investors responded well to the government's report into the banking system did not call for radical change, such a structural reform or even tighter lending practices.  

The Japanese economy contracted in Q3 and appears to have recovered in Q4, but uninspiringly so. Today the January composite PMI was reported.  It fell to 50.9, nearly matching last year's lows from September (50.7). It averaged 52.3 in Q4 18 and 51.5 in Q3. Japan's Q4 GDP will be published next week. After a 0.6% contraction in Q3, it is expected to have expanded by 0.3%. 

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Read more by Marc on his site Marc to Market.

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