Markets Finishing Week On Positive Note

Japan's headline inflation in December fell to 0.3% from 0.8% in November, in line with expectations. The core rate, which only excludes fresh food, and is the targeted rate by the BOJ eased to 0.7% from 0.9%. Excluding fresh food and energy, Japanese inflation was unchanged at 0.3%. This is where it stood at the end of 2017 too. At the end of 2016, it was at 0.1%. There is some speculation that the BOJ may shave its inflation forecasts at next week's meeting. Separately, weekly data from the Ministry of Finance shows that Japanese investors took advantage of the strong yen to step up their purchases of foreign bonds. Last week, JPY2.2 trillion of foreign bonds was bought (~$20 bln), the most since last September (~JPY2.3 trillion), which itself was the most in a couple of years.  

The dollar is poised to snap a four-week slide against the Japanese yen and around JPY109.50, it is up just shy of 1% for the week. The high this year has been about JPY109.80. Some of the dollar buying today may have been spurred by the options market, where large expiring options were thought to have been out of the money are now in the money. There is a $2.2 bln option struck at JPY109, and almost $930 mln struck at JPY109.10 that roll-off today. The JPY110.00-JPY110.30 offer the next important technical area. The Australian dollar continues to straddle the $0.7200 area but recovered from yesterday's dip below $0.7150. Both the Australian and New Zealand dollar have been confined to yesterday's ranges. The dollar's four-week losing streak against the Chinese yuan appears to have also been broken. On the week, it rose a little less than 0.2%.  


Prime Minister May is to deliver "Plan B" on Monday to the House of Commons, and a vote is expected by the end of the month.  Although Chancellor of the Exchequer Hammond reportedly indicated that a no-deal Brexit is not likely, May refused to rule it out, saying it is not within the government's power to do so. Preparations continue. The DUP from Northern Ireland was the key to May's survival of the vote of confidence this week. It said it could support a Norway-style agreement to stay in the customs union if it meant removing the threat of an indefinite backstop. May rejected it. A YouGov poll showed that the Remains now at a post-2016 high.

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Read more by Marc on his site Marc to Market.

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