Markets Relieved After Trump/Abe Meeting, Reflation Narrative Intact

Well, it was all aboard the reflation train right out of the gate in early Asian trading last night with USDJPY jumping with 10Y yields and futs, following what counts as a “successful” high level summit these days.

As I noted last week, the fact that Trump didn’t physically assault Japanese PM Shinzo Abe (well, unless you count the incredibly awkward handshake) was a big relief for markets as investors feared the new President might try to exert pressure on Abe regarding Japanese monetary policy’s tacit goal of putting downward pressure on the yen


Note how you have to condition yourself to think ass backwards to understand the market these days. “The absence of critical remarks from Trump about the BOJ’s monetary easing or Japan’s yen policy eases uncertainties over the central bank’s bond purchases,” Hiroki Tsuji, market analyst at Mizuho Securities said on Monday, adding that “the risk-on sentiment that lifted overseas yields Friday is exerting upward pressure on Japanese yields.”

Think about that. So the fact that Trump didn’t criticize the BoJ for trying to drive the yen lower with loose monetary policy, was a risk-on signal which in turn drove the yen lower and drove yields on Japanese government bonds higher. Wrap your head around that, why don’t you. Here’s SocGen’s morning take:

President Trump played golf with Japanese Prime Minister Shinzo Abe, with bonhomie replacing currency wars. That (and a Q4 GDP result in Japan that at 0.2% q/q came in just fractionally below market expectations) set the stage for a risk-friendly start to the week, with USD/JPY tracking higher and equities in a buoyant mood across Asia.

USDJPY momentum would eventually fade as the sugar high wore off. “Market focus is now returning to Trump’s fiscal policy, details of his tax plan,” Koji Fukaya, CEO at FPG Securities in Tokyo told Bloomberg overnight. “There is still no detail about his reflationary fiscal policy and since the situation hasn’t changed, Yellen is likely to keep a cautious stance of showing its willingness to raise rates but not in a hurry.”

Meanwhile, GDP data out of Japan came in a shade weaker than expectations:

  • JAPAN 4Q GDP ROSE 0.2% Q/Q; EST. 0.3%

The net result of all this is Nikkei +0.4%. The rest of Asia rose as well as the region shook off saber-rattling from Pyongyang.

  • Nikkei up 0.4% to 19,459.15
  • Topix up 0.5% to 1,554.20
  • Hang Seng Index up 0.6% to 23,710.98
  • Shanghai Composite up 0.6% to 3,216.84
  • Sensex up 0.09% to 28,358.73
  • Australia S&P/ASX 200 up 0.7% to 5,760.69
  • Kospi up 0.2% to 2,078.65

It’s also worth nothing that the onshore/offshore RMB spread disappeared on Monday after the PBoC cut the USDCNY fixing and restarted liquidity injections which had been on hold for more than a week.


In Europe, shares are higher across the board, helped by basic resources which is getting a shot in the arm from soaring copper prices:


European stocks are eying their longest winning streak in months:


  • STOXX Europe 600 up 0.3% to 368.34
  • German 10Y yield rose 1.9 bps to 0.339%
  • Euro down 0.04% to 1.0639 per US$
  • Brent Futures down 0.8% to $56.23/bbl
  • Italian 10Y yield rose 9.7 bps to 2.271%
  • Spanish 10Y yield rose 1.8 bps to 1.72%

In the US, watch 10Y Treasury yields today. Japanese investors trimmed their UST holdings in December by the most in four years, a sign of waning foreign demand. Watch oil as well to see how the market digests OPEC’s monthly report.

US futs are marginally higher as of pixel time.

Happy trading.

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