Redemption Monday

Overview: The holiday-shortened week is off to a slow, tentative start. The surge of the S&P 500 before the weekend failed to inspire today. Asia markets were mostly firmer, led by Japan, while China, Hong Kong, and Singapore moved lower. The Nikkei gapped higher, jumping above the 22k level that had been holding it back. It is at its best level since early last December. The US coattails are even shorter in Europe, where the Dow Jones Stoxx 600 is little changed, with a three-day rally in tow.  US shares are a little heavier. US Treasuries are consolidating the pre-weekend drop, which weighed on Asia-Pacific bonds earlier today, and European benchmark yields are firmer, with Italy bucking the trend. The dollar is mostly softer, with sterling and the Swedish krona the strongest of the majors (~0.20-0.25% higher), while the Australian and Canadian dollars are lightly softer, alongside the Norwegian krone. The South Korean won is the strongest of the emerging market currencies today, helped by the rally in US stocks and Chinese economic data.  

Asia Pacific

US Treasury Secretary Mnuchin suggested that the trade talks with China are nearly complete. He acknowledged, it seemed for the first time that the enforcement mechanism would work both ways, meaning that the US could also be subject to repercussions if it were to fail to make good on its commitments. Still, US officials have been claiming progress on a nearly daily basis. When a date is set for the next Trump-Xi meeting, that will be the best indication that a deal has been reached. Note that unlikely NAFTA 2.0, this is not a treaty that requires Congressional approval. This is an executive agreement.  

The US-Japanese trade negotiations begin in the middle of the week. This too will be an executive agreement that does not require approval from Congress. Some critics see these executive agreements as a way to bypass the legislative branch. Talks this week will lay the groundwork for Abe's US visit later this month. Part of the problem is that Japan has struck agreements with Europe and the Trans-Pacific Partnership and it now grants others greater access than the US. This has hit US agriculture, where US pork exports to Japan, for example, are off by more than a third this year. As the US insisted in the NAFTA 2.0 talks and in negotiations with China, it seeks protection against currency manipulation, which seems to be mostly a question of transparency of actions. Japan does not appear to have intervened in the foreign exchange market for several years.  

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Read more by Marc on his site Marc to Market.

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