Overview: Cynicism over the prospects of a resolution to US-Chinese trade tensions and a break-through in UK-EC Brexit talks appears to be injecting a more cautious tone to the capital markets. The recovery in equities has stalled. The MSCI Asia Pacific benchmark halted a four-day rally, and the Dow Jones Stoxx 600 Index is off marginally today after advancing every session last week. European and Asia-Pacific bond yields were dragged higher by the sharp rise in US yields following the jobs and earnings data before the weekend, but the US 10-year yield is dipping back below 3.20%. The dollar is little changed but mostly firmer against the major currencies, where near midday in Europe the dispersion of changes among the major currencies is less than +/- 0.15%. Emerging market currencies are mostly lower, led by India, South Africa, Turkey, and China. The retreat in oil prices has extended into a sixth session, but the downside momentum appears to be easing and be on-guard for a potential reversal. 

Asia-Pacific

China’s President Xi did not offer fresh initiatives at today’s speech in Shanghai. He did seem to play up ongoing plans to reduce tariffs. There are many areas in which China could gain efficiencies by modernizing and selectively liberalizing. Reducing some tariffs and domestic taxes may provide economic stimulus without necessarily boosting debt or leverage. Chinese stocks finished lower, but the Shanghai Composite traded within the pre-weekend range and settled near session highs. A gap that extends to a little above 2700 may be key to the near-term direction. After appreciating in the last two sessions, the yuan eased by 0.5% today. 

The dollar is firm against the yen and is a little shy of last week’s high near JPY113.40. This area is proving sticky but if and when it is surmounted it is the last significant barrier to a run at the year’s high set in early October near JPY114.55. The Japanese economy may have contracted in Q3, but is off to a better start in Q4. The October manufacturing PMI was nothing to write home about. It slipped to 52.9 from 53.1 but the services sector PMI, reported earlier today, rose to 52.4 from 50.2. This was sufficient to lift the composite to 52.5 (from 50.7), which is the highest since April. Meanwhile, the BOJ’s Kuroda seemed more circumspect about the large-scale effort to overcome deflation and seemed more cognizant of the costs. Still, the underlying problem remains the same, The lack of much progress toward the inflation goal restricts the room to maneuver.