Risk Assets Underperform As Investors Await Fresh Developments

Overview: The capital markets remain relatively subdued as fresh trading incentives are awaited, including US corporate earnings. Some of the enthusiasm for risk-assets has diminished. The MSCI Emerging Markets Index has stalled after trading at six-week highs yesterday, though most bourses in Asia were higher, but the Nikkei (Topix gained), China, and Singapore. The Dow Jones Stoxx 600 is a bit heavier but continued to bump against 350, the best since mid-December.US shares are trading lower, and the S&P 500 is poised to test previous resistance now support near 2600. Benchmark bond yields are little changed. The dollar is mostly firmer, though it has been unable to sustain yesterday's gains that carried it to JPY109.20, the highest since January 2. 

Asia Pacific

The limited news from the region was generally disappointing.  Australia reported slower lending for both homes and investment and softer consumer inflation expectations. New Zealand reported a 12.9% year-over-year drop in house sales. National sales were the lowest for December in seven years. Weakness is concentrated but especially pronounced in Auckland. The takeaway here is that both countries are wrestling with the end of a housing boom and the economic consequences. Both central banks are on hold, but rate cuts later in the year cannot be ruled out.  

Given Singapore's role in the global division of labor as an entrepot, its December trade figures are jarring.Non-oil domestic exports were off 5.7% in December.The median forecast by economists in the Bloomberg survey looked for a 3% gain.On a year-over-year basis, they fell by 8.5%, the most in two years. Electronics exports, a reflection of world demand, slumped 11.2% year-over-year in December.Non-oil exports to China rose 15.4%and 31% to the US.Exports to the EU fell by 28.7%. 

 The dollar is trading inside yesterday's range against the Japanese yen.It had risen to JPY109.20 yesterday, taking out last week's high by around ten pips.  Look for support in the JPY108.40-60 area to temper deeper declines, barring new volatility in equities.  The Australian dollar recorded new lows for the week a little below $0.7150.It bounced in late-Asia/early Europe to $0.7170 but met a wall of offers.Last week's low was near $0.7110.  A break of $0.7100 is needed to lend credibility to ideas that a top is in place.  The New Zealand dollar is off for the fourth consecutive session and is also holding above last week's low a little above $0.6700.  The Kiwi stalled today just ahead of $0.6780 and $0.6795 expiring options for almost NZD900 mln.  The dollar rose by nearly 0.2% against the Chinese yuan, its biggest gain of the year.There is some concern that the US likely escalation of efforts against Huawei may hamper trade talks.China's death sentence for a Canadian, allegedly for drug smuggling is seen by many as chiefly political and retaliatory.

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Read more by Marc on his site Marc to Market.

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