US markets are closed for the Presidents' Day holiday, but it hasn't prevented its pre-weekend gains giving a bullish tone to global equities. The S&P 500 and NASDAQ recovered from early weakness to close at new record levels before the weekend. Global equity markets are following suit today.
The MSCI Asia Pacific Index eked out a small gain (0.05%). Japan's minor gain held back the regional index. Without, the MSCI benchmark would have risen nearly 0.2%. China's shares led the with the Shanghai Composite up 1.2%. China's shares that trade in Hong Kong continue to perform well, rising another 0.8% to bring the year-to-date gains to an 11.2%.
The Dow Jones Stoxx 600 is up about 0.25%, led by telecom and financials. The index gapped higher but held below last week's high, which was the best level since December 2015. The gap is small (370.76-370.88). The fallout from Kraft Heinz withdrawing its bid for Unilever appears localized.
Benchmark 10-year bond yields are most one-two basis points higher. There does not seem to be much reaction to the weekend political developments, where Renzi has stepped down as PD chairman as a leadership battle is waged that could split the center-left party, which is seen as increasing the chances of electoral success by the 5-Star Movement. Also, the possibility of the united left candidate in France appears to h the seasonal pattern was eviden ave diminished, and Macron was criticized for comments critical of French history in Africa. The meeting of European finance ministers is not expected to reach an agreement to make another tranche payment available to Greece, but Greek bond yields are slightly softer. As we have noted, Greece does not need the funds until early Q3 and brinkmanship tactic requires approaching the brink.
The economic calendar is light today. There are three main features: Japanese trade, Germany producer prices, and UK CBI trends. The Japan's January trade deficit was larger than expected, as exports disappointed and imports surprised on the upside. It was the first deficit since last August. There is a large seasonal component, and in the most commentary, it is attributed to the Chinese New Year. We are a bit skeptical and note that for more than 20-years, which means that even before China became Japan's largest trading partner, the seasonal pattern was evident.
The January trade balance always deteriorates from December. Moreover, Japan's exports rose in China (3.1% year-over-year) while shipments to the US and Europe fell (6.6% and 5.6% respectively). Exports of motor vehicles fell 6.7% year-over-year in value terms. Crude oil imports surged 36^ in value terms. Exports were off 0.3% in volume terms. The shortfall of JPY1.087 trillion was the largest since January 2015.
German producer prices surged 0.7% in January. This is twice the pace the median forecast had anticipated in the Bloomberg survey. The year-over-year rate surged to 2.4% from 1.0% at the end of last year. It is the highest reading since March 2012. As was the case with the surge in consumer prices, energy is the leading culprit. Energy rose 4%, and mineral oils rose 20%. Electricity prices increased 6.5%. The base effect warns of additional upside pressure this month.
The UK February Trends report saw factory orders rise to the highest level in two years. The industrial order balance rose to 8 from 5. The median guesstimate anticipated a small decline. Price expectations also edged higher. The report lends support to other data that suggests the drop in the sterling has had a greater impact on inflation than exports. Sterling ticked higher on the news but may have put the session high in below $1.25.
More broadly, the dollar is mixed against the major currencies. Sterling is the strongest, gaining a little less than 0.5% to recoup most of the pre-weekend loss. The Japanese yen is the weakest of the majors, losing about 0.3% with the greenback straddling the JPY113.00 area. The other major currencies are in narrow ranges and little changed. Among emerging markets, the Russian ruble is the strongest, with a 0.6% gain following Moody's pre-weekend decision to upgrade its outlook. The South African rand is the weakest. It is off about 0.6% and is moving lower for its third consecutive session.
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.
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