Markets Ending Week With A Whimper

Overview: The global capital markets are winding down what appears to be an inconclusive week quietly and on a mixed note. The MSCI Asia Pacific Index is poised to snap a four-day advance but held on to a nearly 2% gain for the week. European bourses are mostly higher, and although the weekly advance of around 0.5% may not be that impressive, Dow Jones Stoxx 600 has only fallen in one of the first eight weeks of the year for a 9.5% year-to-date gain. Benchmark yields are mostly one-two basis points lower, with Australia and Italy the notable exceptions. The US dollar is confined to its well-worn ranges and is narrowly mixed. The Australian dollar has pared yesterday's losses amid efforts by officials to play down the disruption of coal exports to China. Sterling is a little heavier on the day, but it is holding on to a 1% gain for the week. A delay in both Brexit and an escalation of US-China tariffs looks increasingly likely.

Asia Pacific

 Australia's Treasurer and the Governor of the Central Bank tried minimizing the significance of the disruption of coal exports to China. Reuters reported yesterday of the disruption, and the Australian dollar fell sharply. The slowdown of Australia's coal exports may have begun last month, and RBA Governor Lowe tried linking it to environment and profitability issues and not to the controversy over Huawei. It is difficult to know. China uses its commercial power to express its displeasure, and there is a lack of transparency. This ambiguity keeps China's adversary off-balance. Investors will be sensitive to data that shed light on these developments.  

The Reserve Bank of New Zealand warned that raising capital requirements for banks could, all else being equal, tighten financial conditions. This, in turn, could pressure the RBNZ to cut rates to offset this "regulatory" tightening. The RBNZ is proposing lifting the Tier 1 capital requirement to 16%, or nearly double current levels. A formal decision is expected in Q3. 

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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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