Trade Optimism And The Recovery In Oil Boosts Risk Appetites

Overview: Optimism on trade talks between the US and China coupled with the biggest rally in WTI in two years (11%+) have helped keep the equity market recovery intact. The MSCI Asia Pacific Index rose today, the eighth time in the past ten sessions, while the Dow Jones Stoxx 600 in Europe is closing in on its second consecutive weekly advance. The S&P 500 has a five-day rally in tow and is likely to extend its gains for a third consecutive week.  Benchmark 10-year yields are mostly softer, though on the week, core bonds are little changed. In Europe, peripheral bonds and France saw premiums over Germany shrink. The dollar is heavier against all the majors but sterling. On the week, the greenback has slipped against all the majors, with sterling and the yen the laggards, while the dollar-bloc and the Norwegian krone leading the way higher. The Chinese yuan is the strongest currency on the day rising about 0.75%, and on the week, with its nearly 2% advance.  

Asia Pacific

China's Vice Premier Liu He will travel to Washington at the end of the month and meet with US Trade Representative Lighthizer and Treasury Secretary Mnuchin for the next round of trade talks. It seemed easy for the mid-level team of negotiators to agree to buy more low value-added energy and agriculture goods from the US because China previously agreed before President Trump rejected the agreement. The non-tariff barriers, including technology transfers, require higher levels talks, but the underlying optimism stems from ideas that the blowback to the stock market has given the US Administration a greater sense of desire for a deal, even if the strategic competition for regional and global influence is not addressed.   

Despite a 2% year-over-year rise in November labor cash earnings in Japan, the most in five months, household spending slumped 0.6%.  Economists had expected recovery from a 0.3% decline in October. Japan is on track to raise the retail sales tax from 8% to 10% in October. The data also suggest a weak recovery from the natural disaster-induced contraction in Q3.  Separately, Japan reported a larger than expected current account surplus, driven by a smaller trade deficit.  Japan's current account surplus is a function of investment income (from portfolio and direct investment abroad) not from the trade balance. Through November, Japan's average monthly trade balance in 2018 was about  JPY88 bln.  

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Read more by Marc on his site Marc to Market.

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