New Phase Begins With UK Vote

Overview: Several of the equity benchmarks are flirting with six-week highs, including MSCI Asia Pacific Index and the Emerging Markets Index. The Dow Jones Stoxx 600 is trying to extend its advancing streak for a third week, something not done since July. The 350 level, which it is toying with, is similar to the 2600 level in the S&P 500 that has also being tested. Today's advance is shrugging off yesterday's loss in the US with the help of indications from China that it will be more aggressive about cutting taxes and new data showed lending was stronger than expected. Despite the firm equities, bond yields in Europe are a basis point or two softer. The US 10-year yield is also struggling to stay above 2.70%. The yield on Japan's 10-year bond dipped back into negative territory. The dollar is a little firmer against most of the major currencies. The key event today is the vote on the Withdrawal Bill in the House of Commons, which is expected early evening in London and late in the US equity session.

Asia Pacific

Chinese officials continue to drip-feed new stimulative measures. Today's announcement was about broader tax cuts, though no details were available. Separately, China reported a larger increase in lending than expected. This included a CNY1.080 trillion rise in new yuan loans and a CNY1.589 trillion rise in aggregate financing. Recall banks are largely responsible for the yuan loans, while the aggregate financing includes the so-called shadow banking, which in China is also the wealth management arms of some banks, no just non-bank financial institutions  

The dollar appears to be forging a base against the yen around JPY108. Its recent range is marked by expiring options today. The JPY108 strike is for $1.7 bln, and the JPY09 strike is for about $375 mln. The intraday technicals suggest another run at the upside for the dollar. The improved risk assessment, which is weighing on the yen, is not helping the Australian dollar much. It continues to straddle the $0.7200 area for the third consecutive session. A break of $0.7175 may be an early warning that the rally since the flash crash low near $0.6740 is exhausted. Although India's December CPI was in with expectations (2.19%), the rupee is under pressure. The US dollar is taking out a 2.5 month down trendline that comes in near INR71.00. The next technical target is seen near INR71.60 and then INR72.00. The Chinese yuan has been confined to yesterday's range as it consolidates its recent advance, which we suspect has also run its course.

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Read more by Marc on his site Marc to Market.

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