From Marc to Market, January 20:
Dismal UK Retail Sales Weigh on Sterling, While the Yen Softens
Overview: The US dollar is mostly softer today against the G10 currencies, with the notable exception, yen, Swiss franc, and sterling. The risk-on mood is seen in the foreign exchange market with the Antipodean and Scandi currencies leading the move against the greenback. The yen has fallen by about 1.3% this week, leading losers, while sterling's 1.1% gain puts it at the top.
Despite the poor showing of US equities yesterday, risk appetites returned and most of the large bourses rose in the Asia Pacific region, led by a 1.8% rally in Hong Kong and a 2.3% gain in the index of mainland companies. Both indices are up more than 11% this year. Europe's Stoxx 600, which snapped a six-day advance yesterday with a 1.6% loss has stabilized and is up about 0.4% today. It has risen by almost 6.5% here at the start of the year. US futures point to a steady to higher opening. Meanwhile big moves are being seen in the bond market. European benchmark 10-year yields are 7-12 bp higher and peripheral-core spreads have widened, but this is a countertrend move to what has been seen this week. The US 10-year yield is up four basis points at 3.43%. It settled last week near 3.50%. A close here would be the lowest weekly close since early last September.
Asia Pacific
Japan's December inflation rose in line with expectations. The headline and core rate (excludes fresh food) rose to 4.0%. The core rates excluding energy rose to 3%. These are new cyclical highs and tipped by the Tokyo CPI readings that were reported a couple of weeks ago. In fact, the Tokyo's January CPI will be reported next week (January 27). Japan's inflation may peak the in January or February as the impact from the fiscal efforts (subsidies), decline in energy prices, and appreciation of the yen on a trade-weighted basis (~11-12%) is anticipated. Separately, the generic 10-year JGB yield is closing at its lowest level (0.386%) since before Christmas.China's mainland markets are closed now for the extended Lunar New Year holiday....
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