Overview: UK Prime Minister Johnson is neither dead in a ditch as he said he would prefer to be than request an extension of Brexit, nor will the UK leave the EU at the end of the month. Yesterday's vote rejected the attempt to fast-track the legislation needed to support the divorce agreement. It all but ensures that such a delay will be forthcoming. The question now is whether a new timetable will be agreed up or whether efforts will be made to hold an election. Meanwhile, the capital markets are mostly little changed as investors lack near-term conviction. Asia Pacific equities were narrowly mixed, and the MSCI benchmark was weighed down by losses in China, Hong Kong, Taiwan, and South Korea. Note that Taiwan's benchmark hit a nearly 20-year high yesterday, before pulling back today. Japanese, Indian, and Australian markets edged higher. Bourses in Europe were slightly lower, and US shares were also trading a bit heavier. Benchmark 10-year bond yields are 2-4 bp lower, though the Antipodean bond yields shed 5-6 bp. The foreign exchange market is calm, with most of the major currencies not much more than +/- 0.15% and emerging market currencies in a slightly wider range. Gold remains in a narrow range below $1500, and December WTI is inside yesterday's range, straddling $54 a barrel.
Asia Pacific
The Financial Times reports that plans are emerging whereby Lam, Hong Kong's Chief Executive, steps down, which apparently she has wanted to do for some time. The report suggests that if she is allowed to resign, it might not take place until March. Her term extends to 2022. It is unclear what a resignation then would achieve. The demonstrators have sought her resignation, but waiting four-five months will likely have little bearing on the protests. It is not even clear that if the transition were to happen sooner, it would provide closure and end the demonstrations. The press report (citing "people said") identified two potential candidates, a former head of the Hong Kong Monetary Authority, and a former finance and chief secretary.
The US-China trade conflict has been eclipsed by other developments, but the challenge remains. Both sides are claiming progress, though we continue to note that no date has been set for the resumption of face-to-face talks that are supposed to lead to a signed deal on the sidelines of next month's APEC meeting. China announced it granted its third round of waivers of the retaliatory tariffs to buy as much as 10 mln tons of US soy, which is double the earlier rounds. While many observers see such steps as cooperative, we suspect it shows what could happen without an agreement--opportunistic buying of American soy not to do US farmers any favors but to meet the domestic shortage. That said, US soybeans are at trading near four-month highs, and Chinese importers may wait for prices to soften before placing new orders.
The dollar slipped to a six-day low against the Japanese yen near JPY108.25. The session low has so far been recorded in the Tokyo session, and this may discourage foreign participants from taking the dollar higher if Japanese accounts are sellers. A break of JPY108, which houses the 20-day moving average and the (38.2%) retracement of this month's rally, is necessary to confirm our suspicions that the market is giving up on the JPY109 area. The Australian dollar is trading at a three-day low as the upside momentum has faded, and corrective pressures have come to the fore. Initial support is pegged near $0;6820 and then $0.6800. A close above $0.6865 would lift the tone. The dollar remains in narrow ranges against the Chinese yuan, and the implied one-month volatility has fallen to levels (~4%) not seen since Beijing allowed the greenback to rise above CNY7.0.
Europe
The elation that Prime Minister Johnson felt when the House of Commons supported the broad principles of his agreement (322-299) lasted less than 30 minutes....
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