She Can't Accept No

Overview: The UK Prime Minister has two weeks to strike a new deal with the EC over the Irish backstop or return to Parliament in mid-February to consider alternatives, six weeks before Brexit. Sterling has recovered about half of yesterday's drop. The Australian dollar jump back to $0.7200 was aided by the nearly 10% jump in iron ore price after Vale announced a sharp reduction in output. The Mexican peso is the weakest of emerging market currencies after Fitch cut Pemex's credit rating two notches to BBB- and maintained a negative outlook. Equities are narrowly mixed. Although Chinese and Japanese stocks fell, most of the other regional markets rose. The Dow Jones Stoxx 600 in Europe is eking out a small gain through the morning, led by consumer discretionary and materials sector. Bond markets are also mixed. Italian bonds may be building a concession ahead of today's supply. The ADP private sector jobs estimate, the FOMC meeting, and Mexico's Q4 GDP are the highlights from the North America session.  

Asia Pacific

Australia reported slightly softer Q4 CPI of 1.8%, down from 1.9% in Q3. It rose 0.5% on the quarter. Evidence softer inflation reading will not sway the investors or policymakers is evident by the more than three basis point increase in Australia's two-year yield. The more important news for investors was the 9.5% rise in iron ore prices to 15-month highs, as Vale announced that decommissioning of trailing dams will cut its output by 40 mln tons. Australia's equities rose 0.2%, but the material sector was up over 2%. 

Japan reported retail sales rose 0.9% in December, which was more than twice the gain expected after a 1.1% decline in November (initially 1.0% decline). The year-over-year rate ticked down to 1.3% from 1.4%. Economists expected a 1.0% pace. While stronger retail sales are helpful, the economic rebound from the contraction in Q3 still seems lackluster. Tomorrow Japan is expected to report a 0.5% decline in December industrial output. It follows a 1.0% slide in November after October's 2.4% surge as the reconstruction from the natural disasters kicked-in.  

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Read more by Marc on his site Marc to Market.

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