Sterling Can't Get Out Of Its Own Way

Overview: There is a nervous calm in the capital markets. Yesterday's rally in US shares failed to excite global investors. China, Hong Kong, and Taiwan markets fell, while Japan was mixed. Foreign investors continued to sell Korean shares, but the Kospi rose. European shares narrowly mixed, leaving the Dow Jones Stoxx 600 little changed. There are two notable exceptions to the slightly softer 10-year benchmark yields. The first is the couple basis point increase in China (to a little above 3.3%). The other is the four basis point decline in UK Gilt yield to a little below 1.04%. The yield was off amid the concerns about consequences of a no-deal Brexit, which increased after Prime Minister's botched attempt to revive her Withdrawal Bill, even before the slightly lower than expected CPI print. Sterling has been driven to new four-month lows against the dollar and is extending its losing streak against the euro into the 13th consecutive session. The euro is pushing through GBP0.8800 for the first time since the ill-fated attempt in February. Outside of sterling, the other major currencies enjoy a firmer bias today. Among emerging market currencies, the South Korean won firmed slightly after officials stepped up their warning that the recent decline has been excessive, implicitly threating intervention. The Chinese yuan was flat and has not fallen this week. The dollar finished last week just below CNY6.9180 and is holding a little above CNY6.90 this week.  

Asia Pacific

Chinese state media appears to become more forceful anti-American. The Huawei ban is widely understood as an escalation of hostilities. Although security issues are at stake, both the ZTE case and now Huawei is intricately related to trade as well. There is some thought that Trump would lift the ban if it ensured a comprehensive trade agreement. Meanwhile, reports suggest that the US is considering banning as many as five Chinese firms that provide surveillance products (e.g., Hikvision and Dahua). At the same time, China reiterated its willingness to address the bilateral trade imbalance by buying more US products and services. This has been a Chinese offer since the US backed out of the trade agreement struck by Treasury Secretary Mnuchin a year ago.  

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Read more by Marc on his site Marc to Market.

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