Mnuchin Double Checks, Some Scoff But US Shares Are Higher

Overview: It is not the eggnog or rum balls giving traders indigestion on Christmas Eve, but disruptive impulses from the US. Treasury Secretary Mnuchin tried to put to rest reports that President Trump wants to fire Federal Reserve Chair Powell. Mnuchin indicated that the President recognizes legal limitations. The US Treasury Department also reported that the Treasury Secretary initiated a call to the largest banks and was assured liquidity was ample and that there was no disruption in trade despite the precipitous decline. Mnuchin also plans on talking with Working Group for Financial Markets, which includes the Fed, the SEC and CFTC and has been dubbed the "Plunge Protection Team" by the more conspiratorial-minded. Mnuchin's moves seemed like an exaggerated response and were widely scoffed at in the social media, but US shares are trading higher. The partial US government shutdown has entered its third day and no end is in sight. Global equities are mixed and benchmark 10-year bond yields are little changed. The US dollar is trading heavily against the major and most emerging market currencies.  

Asia Pacific

Equities in the region were mixed, while Tokyo markets were closed. China, Australia, Singapore, Indonesia, and Thailand markets posted modest gains, while the other markets, including Korea, Taiwan, India, and Hong Kong fell. The rupee, the offshore yuan, and the Thai baht rose about 0.25%, while most of the other regional currencies were slightly lower, with the Korean won off a quarter of one percent as the laggard. The Australian dollar is the strongest of the majors, up about 0.3% as it consolidates the steep pre-weekend decline. The dollar remains pinned in the trough seen last week against the yen where three-month lows near JPY110.80 were recorded. The greenback has largely been confined to a ten-tick range either side of JPY111.00 today.  

The main development came from China. Reports indicate it will take fresh trade initiative starting January 1 that will reduce tariffs on some 700 goods imports, with some set temporarily at zero. It will also cut export tariffs on nearly 100 items, including fertilizer, iron ore, coal tar, and wood pulp. The move appears to have three objectives. First, seek to minimize the risk of an escalation of trade tensions with the US. It is the third round of tariff reductions this year.  Second, begin putting a wedge between those who demand that China adhere to the trade rules and those that want to contain China's rise and even seek regime change. Third, stimulate the domestic economy without boosting debt.  

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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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