Overview: Asia Pacific equities closed higher today, with India being a notable exception. Hong Kong and South Korea led with 1% rallies. For the week, the MSCI index for the region advanced to snap a three-week decline. European and US bourses have not fared as well. The Dow Jones Stoxx 600 is paring this week's losses, but it is still off around 0.9% through the European morning session. US shares are also firmer, and much depends on the reaction to the employment data, but the S&P 500 is off about 0.75% for the week ahead of the jobs report. Benchmark 10-year bond yields are narrowly mixed on the day. Yields in the East were 2-3 bp firmer, while European yields are a little lower. The US 10-year is dipping back below 1.80% and is off about 2 bp on the week ahead of the jobs report. The dollar is mostly quiet. Sterling is slipping on profit-taking ahead of the weekend, and near $1.3130 is still up 1.5% this week. The New Zealand dollar is the strongest of the majors today, gaining 0.3% to bring the weekly rise to about 2.2%. It is the fourth consecutive weekly advance, and if today's gains are maintained, it would be the biggest gain since early 2017. Growing confidence that the economy is past the worst, in contrast to Australia, has helped underpin the Kiwi. Emerging market currencies are mostly firmer, and the JP Morgan Emerging Market Currency Index is up for a third day and has gained nearly 1% this week to end a five-week drop. Gold is a little softer on the day, but near $1.475, it is up about 0.7% on the week, the best since the end of October. Oil prices are flat as this week's strongest gain since in nearly six months (~5.8%) are consolidated as the market tries to make sense of the 500k barrel a day cut that OPEC is discussing.
Asia Pacific
Many observers' understanding of the main obstacle to the so-called phase one of a trade agreement between the US and China is split between Beijing's demand for tariff roll back and Washington's demand for a fixed dollar amount of the Chinese agriculture market that will be reserved for US farmers. This is the basis of a potential quid pro quo. Trump had previously claimed that phase one was about 60% of the overall agreement he envisaged. Therefore, the logic would seem to be that 60% of the tariffs should be unwound, and that does not count the December 15 threatened tariff. The US is reluctant because the tariff is understood as the way to ensure compliance, and Trump insists it cannot be a fair deal because China has the advantage now. The US bilateral deficit with China has fallen by about $50 bln this year, but this has done very little for the overall US trade balance. The average deficit so far this year is a little more than $52 bln a month. In the first ten months of 2018, the monthly average shortfall was $51.3 bln.
Japan's household consumption tanked in October as the sales tax increase had brought purchases forward, and the typhoon aggravated an already weak situation. The 5.1% year-over-year drop was half again as large as expected, though it is not quite as bad as the month after the last time Japan hiked the sales tax (April 2014 and in May spending imploded 8%). There appear to be downside risks to the forecasts that the Japanese economy is contracting at an annualized pace of 2.7% here in Q4. Separately, adjusted for inflation, real cash earnings rose 0.1% year-over-year in October, which may help illustrate why a sales tax increase from 8% to 10% can be disruptive.
The US dollar is in about a fifth of a yen range through the European morning. The dollar consolidating its biggest loss against the yen in two-months, having fallen by about 0.8% this week (~JPY108.60). Resistance is seen in the JPY108.80-JPY109.00 area today. The week's low was set a little below JPY108.45. Despite some disappointing data this week, the Australian dollar has risen in three of the four sessions coming into today and is firm today though within yesterday's range. Thus far today, it has been confined to less than a fifth of a cent range above $0.6830. It is up about 1.2% for the week to end a four-week drop. The Chinese yuan is edging higher today for its third consecutive advance. It is virtually flat on the week.
Europe
Germany disappoints. The unexpected decline in October factory orders reported yesterday was followed a stunningly poor industrial production data today. There was a broad range of forecasts in the Bloomberg survey from a 0.6% gain to a 0.7% loss. It actually dropped 1.7% on the month and drove the year-over-year decline to 5.3%, the most since the Great Financial Crisis. The output of autos and machinery remains depressed, leading to a 4.4% decline in capital goods production. However, there were more positive impulses from consumer goods (0.3%) and basic goods (1.0%). The magnitude of the drop warns that next week's aggregate report for the EMU will be weaker than the 0.2% decline that economists had forecast...
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