Asia Stumbles, Europe Recovers, Waiting for Trump

The late recovery in US equities before the weekend did little good for
Asian markets
.  Nearly all the Asian equity markets moved lower, led
by the 1.0% decline in Japan’s Topix.  It was the third successive loss
for the Topix, which is the long losing streak of the year so far.  
The MSCI Asia Pacific Index lost 0.6%, further pushing it off the 17-month high
seen last week.  

European bourses are mixed, with shares in Italy and Germany moving
higher, but not sufficiently to offset the other markets, leaving the Dow Jones
Stoxx 600 off 0.2%.
  In late morning turnover, information technology
and materials are leading the gainers, while real estate and telecoms are the
largest drags.  News that Italy’s Intesa will not be purchasing Generali
is helping lift the Italian banking sector which declined in four of last
week’s five sessions.  The FTSE Italia All-Share Banks Index is up 2.4%,
recouping the pre-weekend loss.  

Bond markets are mostly firmer.  The benchmark 10-year JGB yield
is off two bp to yield less than four
basis points.  German bunds are flat to slightly lower, while other EMU
member yields are off 3-5 bp.  This is
allowing the spreads to narrow a bit.  US 10-year yields had approached
2.30% before the weekend.  It is now 2.33%.  As we have noted the
correlation on of the percent change of
the dollar and interest rate spreads (10-year vs. Japan and 2-year vs. Germany) continues to be

As the US 10-year yield approached 2.30%, the US premium over Japan
It finished last week near 2.24%.  It began the month
at 2.36%.  It is slightly firmer today.  The dollar made a marginal
new low just above JPY111.90 in early Asia before recovering toward
JPY112.35.  The intraday technical reading warns
of a likely range-bound North American session. 

The US premium over Germany on two-year money is pushing through 2.10%
today. It is the most since 2000.
  It finished last month near
1.90%.  The German debt market is a  safe haven, and the combination of
political anxiety and the shortage of German paper (for investment and
collateral purposes) has seen the German two-year yield fell to record lows and approach minus 100 bp.  

The euro initially approached $1.0550 in Asia where it caught a good bid,
and by early Europe, had approached $1.0590 where sellers awaited

The intraday technicals warn that the pre-weekend high near $1.0620 may be out
of reach.  

Sterling has the dubious honor of being the weakest of the major
currencies today.
   It has repeated been pushed below $1.24 over
the last couple of weeks but has not closed below there since January 20. 
While it was heavy in Asia, it did not record the low (~$1.2385) until very
early in European turnover.   The proximate cause appears to be press
reports suggesting that UK Prime Minister May appears to be willing to accept
another Scottish referendum if it takes place after the UK leaves the

However, sterling may also be better
on news that the UK may seek to send free movement of EU
migrants immediately after triggering Article 50, which is expected to take
place in the coming weeks. 
The EU is likely to object on the grounds that the UK is still an EU
member until the end of the negotiations, and that such action is a clear
violation of the operative rules.  This
seem to poison the already anticipated awkward and strained
negotiations.   The intraday technicals warn of the cap near

The news stream has been light.  Spain is the first to report
preliminary February CPI.  It fell 0.3% as had been expected, which lifted
the year-over-year rate to 3.0% from 2.9%.  Recall that in February 2015,
Spain was still experiencing deflation (CPU -1.0% year-over-year).  EMU
money supply (January) was also reported
M3 rose 4.9% at annualized rate.  Growth has hovered between 4.8% and 5.1%
with a single exception since last April.  Meanwhile lending to households
ticked up to 2.2% from 2.0% in December.  Loans to non-financial businesses
rose 2.3% over the past year, the same pace as December.  
Separately, the EC reported that economic confidence in the region rose to a
six-year high in January.  

The US reports a preliminary estimate for
durable goods orders (expected 1.7% after -0.5% in December), pending homes
sales (expected 1.0% after 1.6% increase in December) and the Dallas
manufacturing survey (where we expect an upside rise to the Bloomberg median
estimate of 19.4 from 22.1 in January).
The focus this week is on
President Trump’s speech tomorrow evening to a joint session of Congress, the
Beige Book Wednesday, followed by Yellen’s speech on the economic outlook at
the end of the week.  In all at least eleven Fed officials are scheduled
to speak this week.  

Bloomberg calculates the odds of a March hike at 40%.  The CME,
where the Fed funds futures trade, puts the odds at 26%.   Some
participants may be waiting for the February non-farm payroll report (March 10)
before making up their mind.   The early call is for a 175k increase after January’s 227k.  


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