Marking Time on Monday

US markets are
for the Presidents’ Day holiday,
but it hasn’t prevented its pre-weekend gains giving a bullish tone to global
The S&P 500 and NASDAQ recovered from early weakness to
close at new record levels before the weekend.  Global equity markets are following suit

 The MSCI Asia Pacific Index eked out a
small gain (0.05%).  Japan’s minor gain held back the regional
Without, the MSCI benchmark would have risen nearly
0.2%.  China’s shares led the with the Shanghai Composite up 1.2%. 
China’s shares that trade in Hong Kong continue to perform well, rising another
0.8% to bring the year-to-date gains to an

The Dow Jones Stoxx 600 is up about 0.25%, led
by telecom and financials.
  The index gapped higher but held below last week’s high, which was the best level
since December 2015.   The gap is small (370.76-370.88).  The
fallout from Kraft Heinz withdrawing its bid for Unilever appears

Benchmark 10-year bond yields are most one-two
basis points higher. 
There does not seem to be much reaction to the
weekend political developments, where Renzi has stepped down as PD chairman as
a leadership battle is waged that could
split the center-left party, which is seen
as increasing the chances of electoral success by the 5-Star Movement. 
Also, the possibility of the united left
candidate in France appears to have diminished, and Macron was criticized for comments critical of French
history in Africa.    The meeting of European finance ministers
is not expected to reach an agreement to make another tranche payment available
to Greece, but Greek bond yields are slightly softer.  As we have noted,
Greece does not need the funds until early Q3 and brinkmanship tactic requires approaching the brink.  

The economic calendar is light today. 
There are three main features:  Japanese trade, Germany producer prices,
and UK CBI trends.  The Japan’s January trade deficit was larger than expected, as exports disappointed and imports
surprised on the upside.  It was the first deficit since last
August.  There is a large seasonal component, and in the most commentary,
it is attributed to the Chinese New
Year.  We are a bit skeptical and note that for more than 20-years, which
means that even before China became Japan’s largest trading partner, the
seasonal pattern was evident.  

The January trade balance always deteriorates
from December.
  Moreover, Japan’s exports rose in China (3.1% year-over-year) while shipments to the US and Europe
fell (6.6% and 5.6% respectively).  Exports of motor vehicles fell 6.7%
year-over-year in value terms.  Crude oil imports surged 36^ in value
terms.  Exports were off 0.3% in volume terms.    The
shortfall of JPY1.087 trillion was the largest since January 2015.  

German producer prices surged 0.7% in January. 
This is twice the pace the median
forecast had anticipated in the Bloomberg survey.  The year-over-year rate
surged to 2.4% from 1.0% at the end of last year.  It is the highest
reading since March 2012.  As was the case with the surge in consumer
prices, energy is the leading culprit.  Energy rose 4%, and mineral oils rose 20%. 
Electricity prices increased 6.5%.  The base effect warns of additional
upside pressure this month.  

The UK February Trends report saw factory
orders rise to the highest level in two years.
  The industrial order
balance rose to 8 from 5.  The median guesstimate anticipated a small
decline.  Price expectations also edged higher.  The report lends
support to other data that suggests the drop in the sterling has had a greater impact on inflation than exports.  
Sterling ticked higher on the news but may have put the session high in below

More broadly, the dollar is mixed against the major currencies. 
Sterling is the strongest, gaining a little less than 0.5% to recoup most of
the pre-weekend loss.  The Japanese yen is the weakest of the majors,
losing about 0.3% with the greenback straddling the JPY113.00 area.  The
other major currencies are in narrow ranges and little changed.  Among
emerging markets, the Russian ruble is
the strongest, with a  0.6% gain following Moody’s pre-weekend decision to
upgrade its outlook.  The South African rand is the weakest.  It is
off about 0.6% and is moving lower for its third consecutive session.


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