Overview: Mixed data from China and the anticipation of Prime Minister May's "Plan B" are the main talking points, while US stock and bond markets are closed today. Asia Pacific equities were higher, while European markets have failed to follow suit. Benchmark 10-year bond yields are mostly softer, with the on-the-run Japanese Government Bond yield dipping back into negative territory. The US dollar is narrowly mixed, gaining a little against the dollar-bloc currencies and sterling while slipping against the euro, yen, and Scandis. Most emerging market currencies are trading heavier, but the euro is helping the central and eastern European currencies steady. Oil prices edged higher initially but have reversed to trade marginally lower.
Asia Pacific
The uptick in China's December retail sales and industrial output seems to offset the slightly disappointing Q4 GDP figures. Retail sales rose 8.2% year-over-year, up from 8.1%. Economists had forecast an unchanged report. Industrial output rose 5.7% year-over-year in December. The Bloomberg survey showed a median forecast for a 5.3% pace after 5.4% in November. Fixed asset investment was unchanged at 5.9%. Economists had anticipated a small increase. Fourth quarter GDP slowed to 6.4% from 6.5%, the slowest pace since 2009. The main idea is that, to the extent that one is willing to take the data at face value, the gains in retail sales and industrial production suggests that growth is finding a bottom and that the various efforts to stimulate the economy may have begun working.
Last week, press reports played up the debate within the Trump Administration over tactics ahead of China's Vice Premier's visit next week to Washington. The idea that Treasury was in some way sympathetic to easing tariff pressure on China was quickly and now repeatedly denied. Today's reports suggest, as we suspected, there has been little progress in what is a key issue for the Trump Administration and that is intellectual property rights, not tariff barriers to trade per se. Separately, but related, the Administration is reportedly drafting measures that would impose restrictions on state-owned Chinese electronic firms operating in the US. It does not mention Huawei or ZTE by name.
The dollar is consolidating in a narrow range near the best levels seen before the weekend. It has been confined to about a quarter of a yen range above JPY109.50, The five-day moving average has crossed above the 20-day moving average for the first time since December 18, reflecting the recovery from the flash crash low that saw it break below JPY105 briefly. The BOJ meets in the middle of the week. It is not expected to take fresh initiatives. Despite the gradual reduction in its bond purchases (tapering by another name?), and the widening of the band last year under the Yield Curve Control policy to 20 bp, the yield, after some initial volatility, has been straddling zero. The Australian dollar is holding above last week's low just below $0.7150. The upside momentum faded a little above $0.7200. A break of $0.7100 is needed to confirm a top.
Europe
UK Prime Minister May is to present Plan B to the House of Commons later today. The leaks in the media suggest it is Plan A with changes in the backstop provision, which EC has indicated it is not willing to negotiate further. May continues to rule out alternatives, including a postponement of the actual exit date, a second referendum, and remaining in a customs union. Some reports suggest that she wants to re-open the Good Friday Agreement that made for peace between Northern Ireland and the Republic. The House of Commons is to vote on Plan B next week. It is not just officials that are terribly divided on what to do next, but so are the people. According to a recent ICM poll (January 16-18), the most popular choice with 28% support was no-deal exit and on WTO terms. In second place with 24% was to start the process toward a second referendum. A general election was favored by 11%, while 8% wanted to press ahead with May's plan.
Before the weekend, the Bank of Italy cut is GDP forecasts to 0.6% and 0.9% from 1.0% and 1.1% for this year and next respectively....
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