Thursday, February 28, 2019

Capital Markets: "Trump Walks Away from North Korea. Should Beijing Worry?"

And it appears the pound is going back to $4.80.
Might be time to dust off the history books and do a post on old man Morgan's gold-point arbitrage.

From Marc to Market:
Overview: News that the US-North Korean summit ended abruptly without an agreement spurred losses in equities and gains in the Swiss franc and Japanese yen. US President Trump willingness to walk away from the talks is important in and of itself, but it also sends a warning not to go all in on a US-China trade agreement that could also sour at the last minute. North Korea may express its displeasure by renewing missile tests. In addition, the tension between India and Pakistan remains in a heightened state. Equities in Asia Pacific (with the notable exception of India and Australia) and Europe are lower, and US shares are trading softer in Europe. Gold is firm, though below yesterday's high ($1333). Oil is paring yesterday's ~2.5% gain helped by the biggest drawdown of US inventories (8.65 mln barrels), which snaps a five-week build and offsets in full the past three weeks of stock building. The dollar is mixed, with the dollar-bloc currencies and sterling lag, while Sweden's strong Q4 GDP (1.2% quarter-over-quarter rather than 0.6% median forecast in the Bloomberg survey) has lifted the krona to the top of the boards with around a 0.8% gain.

Asia Pacific
Japan reported disappointing data that cannot simply be dismissed due to the usual distortions at the start of the year. January industrial output tumbled 3.7%. Economists expected something closer to a 2.5% decline. The data may be exaggerated, but the direction is clear. It is the third consecutive month that industrial output fell. Moreover, the decline over the past three months is the largest in eight years. The same general pattern is seen in retail sales, which Japan reported fell 2.3% in January. It was three times larger a decline than economists expected. It is the second decline in three months, during which time retail sales have fallen most in two years.

China disappointed. If the official PMI is manipulated by the government as some suspect, they are not doing a good job. The official manufacturing PMI fell further into contraction territory at 49.2 (from 49.5). This is a three-year low. The output component fell below the 50 boom/bust level for the first time since 2009. The non-manufacturing PMI slipped to 54.3 (from 54.7). Construction was notably weak. Investors seemed to look past disappointment, perhaps persuaded as we, that Chinese officials are committed to doing whatever it takes strengthen the economy, which avoids the further estrangement of the people from the Party and illustrates its resolve in the face of a foreign threat.

The dollar is trading a little softer against the yen but remains in the upper end of yesterday's trading range. Recall the high for the week was recorded on Monday near JPY111.25. Yesterday, the low for the week was recorded near JPY110.35, which coincided with the 20-day moving average, which the dollar has not closed below this month. There is a $500 mln option at JPY110.40 that expires today. The Australian dollar posted an outside down day yesterday by trading on both sides of Tuesday's range and closing below its low. However, there has been no follow-through selling today, and the Aussie is consolidating mostly in a narrow range of $0.7130-$0.7150. There is an expiring option for A$935 mln struck at the upper end of that range that may be reinforcing the cap....MORE
So what happened in Hanoi?
It started out on a promising note:
And then it all went bad: