In thin Asian trading, with the Japanese markets closed for holiday, the US dollar’s pre-weekend losses were extended. However, European participants took advantage of that pullback to buy more dollars. A similar reversal of sentiment was evident in the equity markets. The MSCI Asia-Pacific Index, excluding Japan, was off 0.2%, while European shares are broadly higher. The Dow Jones Stoxx 600 is up 1% near midday in London.  Utilities are lagging, but the only sector down in Europe is energy. Oil prices have extended their decline and Brent is making new lows.
Fundamental developments are light on the ground. However, the market is focused on European negatives more than dollar positives. The negatives include the prospect of further easing of monetary policy through sovereign bond buying and the political challenges offered by Greece immediately (January 25) and then Italy and Spain further out. That said, 10-year Greek bonds are rallying today along with Spain and Italy. Â
In Japan, there was an election in the Saga prefecture.  We had noted that the election for governor pitted Hiwatashi, a reform candidate, backed by Prime Minister Abe, against Yamaguchi, who enjoyed the support of the some local LDP and Japan’s Agricultural Cooperative (JA). JA is seen as a powerful force against the agricultural reforms that Abe is pushing under the cover of the Trans-Pacific Partnership. Yamaguchi’s victory in Saga illustrates the challenges facing Abe’s third arrow of structural reforms, despite the ruling coalition maintaining its super-majority in the December election. Â
Fitch downgraded Russia to its lowest investment grade status before the weekend, which had been well anticipated. However, the continued drop in oil prices, the Russian ruble has come under new selling pressure today, losing 1%. In fact, along with the ruble, the central European currencies are the weakest among the emerging markets today.  Â
