Markets Look For New Cues With US-China Trade Pact Signed

Overview: The global capital markets are calm today as investors await fresh trading incentives. New record highs in the US equity indices gave Asia Pacific stocks a lift, though China and Taiwan were notable exceptions. Europe's Dow Jones Stoxx 600 is firm new record highs set last week. US equities are edging higher in Europe. Benchmark bond yields are little changed. European yields are a little lower, while the US 10-year is steady around 1.78%. UK short-term rates are steadying after their recent drop as the market discounts a greater chance of a cut later this month. The dollar is trading lower against the major currencies, but the Japanese yen in quiet turnover. Emerging market currencies are mostly lower ahead, though the yuan recouped yesterday's decline. The market awaits the South African (expect steady policy), and Turkey's 75 bp rate cut was anticipated. Gold is paring yesterday's gains, and the decline in US oil inventories may be lending crude some support.  

Asia Pacific

Japan's sales tax increase distorts some high-frequency data. It impacts economic activity as it was brought forward. The tax increase also affects prices. Both of these were seen in today's data. Core machine tool orders jumped 18% in November, around six-times greater than expected after a 6% drop in October. This is seen as a good indicator that capex will bounce back quickly. Separately, producer prices rose 0.1% in December, but 0.9% year-over-year. Recall there were negative year-over-year readings from June through October 2019. The BOJ meets next week. Although policy is unlikely to change, the central bank will offer new forecasts.  

China's lending figures showed bank lending slowed in December, while the shadow banking lending rose. Bank loan growth eased to CNY1.14 trillion from CNY1.39 trillion. Aggregate financing quicken to CNY2.1 trillion from CNY1.75 trillion. The difference between the two is a useful proxy for shadow banking activity. The average aggregate financing in 2019 rose to CNY2.13 trillion from CNY1.87 trillion in 2018. Given the debt-led growth reliance in China, better lending figures seem consistent with the stabilization of the economy. 

The dollar has been confined to about a 10-tick range on either side of JPY109.95. Recall Tuesday's high was near JPY110.20. There is an option for $1.8 bln at JPY110 that expires today. Near-term direction cues may come from other capital markets. The side of the risk-on mode that weighs on the yen is helping support the Australian dollar, which is testing the upper end of its recent range near $0.6920. Above there, resistance is seen in the $0.6940-$0.6960 area. The Chinese yuan remains firm though it is below the high set earlier this week that saw the dollar trade near CNY6.8670. The continued firmness of the yuan seems to go against the impulses from the monetary stimulus. The PBOC cut reserve requirement to start the year, and the new benchmark, the loan prime rate, is expected to slip lower when it is set in a few days.   

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Read more by Marc on his site Marc to Market.

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