From Marc Chandler at Bannockburn Global Forex:
Overview: The dollar is narrowly mixed against most of the G10 currencies as it continues to consolidate its recent gains. The yen is the notable exception, and it was sold today, not in response to developments in the US Treasury market, a frequent driver, but in response to comments by a deputy governor of the central bank, suggesting a rate adjustment would not necessarily signal the start of a tightening cycle, which some economists expected. Emerging market currencies are also mostly narrowly mixed. Central European currencies are firmer, even the Czech koruna, ahead of what is expected to be the second cut in the cycle that began in December. More deflation readings from China did the yuan no favors, but the yen's weakness may have weighed on it, ahead of the long holiday celebration. India's central bank stood pat, and the rupee is flat. The Mexican peso is little changed ahead of the CPI report and the central bank meeting later today.
The weaker yen and BOJ comments helped lift the Nikkei by 2% today and it is now up over 10% this year. China's shares were higher too. Hong Kong and India, among the large markets, traded heavily. Europe's Stoxx 600 is recouping yesterday's 0.25% loss and bank shares have steadied after falling 1.4% yesterday. US index futures are narrowly mixed. The 10-year JGB yield slipped back below 0.70%, while benchmark yields in Europe are little changed. The 10-year US Treasury yield is up slightly at 4.11%. Ahead of today's final leg of the quarterly refunding, the 30-year yield is up a basis point to 4.33%. Gold is quietly hovering around $2029-$2039. March WTI is trading at a new high for the week near $74.40. It is the third session of higher highs after bottoming on Monday near $71.40.
Asia Pacific
Seemingly under-appreciated by many observers who continue to make gratuitous references to Japan's export prowess, the world's third-largest economy has run trade deficits for the past three years. It also recorded trade deficits in the two years before Covid. That said, for only the third time since July 2021, Japan reported a monthly trade surplus in December (~JPY69 bln or ~$470 mln). On the balance of payments basis, which was reported today, a larger surplus was recorded (~JPY115.5 bln). On this basis, it was the fourth monthly surplus since October 2021. Nevertheless, Japan's current account surplus is substantial near 3.5% of GDP in 2023 and near pre-Covid proportionality. And despite the trade surplus, the current account surplus narrowed in December, as it has done for the past 11 Decembers.
China remains in deflation. Consumer prices fell on a year-over-year basis for the fourth consecutive month. The 0.8% decline in January was more than expected and follows a 0.3% decline in December. Yet, to simply roll out the trope about weak demand seems to underappreciate that retail sales rose 7.2% in nominal terms on a year-over-year basis in 2023. Weakness in retail sales -0.2% in 2022) was an issue, and it followed a 12.5% increase in 2021. Goods price deflation (-1.7%) is evident in China and elsewhere. Services prices are 0.5% higher than a year ago. Outside of the widely experienced goods deflation, food prices are the main deflationary headwind, and weak demand is a less satisfying answer. Food prices are off nearly 6% from a year ago. This is about supply. Non-food prices rose by 0.4% year-over-year. The core rate, which excludes food and energy, remains positive since a brief dip into deflation territory in January 2021. It rose by 0.4%. Still, it has not been above 1% since March 2022. In January, consumer prices rose by 0.3% after a 0.1% increase in December. Producer prices are a different story. Deflation forces have gripped producer goods since Q4 22. The year-over-year decline has been 2.5% and 3.0% in the last four months. In January, producer prices were 2.5% lower than a year ago, after falling by 0.2% in the month....
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