Active Stocks And Bonds Contrasts With Subdued Fx

The foreign exchange market is quiet and mixed. The focus is on the weakness of global equities and the continued sell-off in European bonds. The eventful week that sees the Fed, BOJ, and BOE meet, US employment report, PMIs, and EMU GDP, inflation and unemployment is starting slowly.  

The weekend news from the US over the controversial actions on refugees, immigrants, including green card holders, is an obvious talking point, though with seemingly little impact on the capital markets. The dollar, for example, largely recovered from the losses seen initially in Asia, where participation was thinned in any event due to the Lunar New Year celebration is many countries, including China (including Hong Kong and Taiwan), South Korea, Singapore,and Malaysia.  

The Nikkei’s 0.5% loss broke a three-day advance from the end of last week. Losses were led by financials and telecoms. Consumer staples were the strongest sector, gaining 0.2%. This comes as Japan released disappointing retail sales figures for last month.Retail sales fell 1.7% in December. This was more than three times larger than the Bloomberg median forecast of a 0.5% decline. The year-over-year rate fell to 0.6% from 1.7%. Consumer spending remains a soft spot for the world’s third largest economy, and this point will likely be driven home tomorrow.  

The economy is finding better traction (expecting industrial output to have risen 0.3% in December for a 3% year-over-year pace), and the labor market is tight (December unemployment to be reported tomorrow will likely show a steady 3.1% unemployment rate). Overall household spending remains soft (December figures will be reported tomorrow and are expected to have fallen 0.9% year-over-year) and a 4.4% decline in December 2015 and a 3.4% falling December 2014).  

After poking through JPY115 at the end of last week, the dollar could not sustain the upward momentum. It was sold a little through JPY114.30 before rebounding back to almost JPY115.00 by early Europe. Initial support may be seen in the JPY114.30-JPY114.50 area.