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Jan 23, 2017

European Markets at Close Report : European Markets Close Lowerr Amid Concerns Over Trump's Protectionism - January 23, 2016

Silvia Amaro, Sam Meredith
The pan-European Stoxx 600 provisionally ended down 0.47 percent with most sectors trading in negative territory. Market players appeared to be adopt a cautious approach after President Donald Trump reiterated his intention to pursue a protectionist agenda.

Samsung Galaxy Note 7 Crisis Signals Problems at Korea Inc. by Choe Sang-Hun and Paul Mozur | NYT Business Day - January 23, 2017
Choe Sang-Hun and Paul Mozur
“The Korean economy as a whole has reached a kind of limit,” said Park Sang-in, a Seoul National University economics professor who thinks that the cozy relationship between the government and business is stifling innovation in South Korea.

5 Things You Need to Know to Start Your Day | Bloomberg Markets - January 23, 2017

 by Lorcan Roche Kelly

Get caught up on what's moving markets.
The dollar drops on Trump's 'America first' speech, there's a showdown looming in the U.S. Treasury market, and it's a big week for the U.K. Here are some of the things people in markets are talking about today.

Dollar falls

The U.S. dollar was lower against all G-10 currencies this morning as traders became increasingly nervous President Donald Trump will pursue protectionist trade policies following his inauguration speech on Friday. Emerging market stocks and currencies also gained, and are headed for the highest level in 11 weeks. Analysts are watching the yen to gauge whether early Trump optimism is waning, with the 115 yen to the dollar level seen as an inflection point. The weaker dollar and policy uncertainty is also lifting gold, which was at $1213.27 an ounce at 5:13 a.m. ET.

Treasury showdown

Hedge funds and institutional investors are taking opposite sides of the Treasury market. Speculators upped their bearish bets, with leveraged funds' short positions on five-year notes exceeding longs by a record 1.1 million contracts, data compiled by the U.S. Commodity Futures Trading Commission show. Institutional investors, on the other hand, boosted their long positions in the same notes to an all-time high in January. The winner in this showdown will be decided by what kind of policies the new president decides to implement.

OPEC shrugs off Trump

The two biggest OPEC suppliers of crude to the U.S. said that despite Trump's stated commitment to achieve energy independence, the U.S. will still need to import oil. Investors seem to be siding with OPEC, with bets on rising West Texas Intermediate prices reaching the highest level since June 2014. A barrel of WTI for March delivery was trading lower at $52.42 as of 5:40 a.m. ET.

Markets slip

Overnight, the MSCI Asia Pacific Index gained 0.3 percent, while Japan's Topix index dropped 1.2 percent on the weaker dollar. In Europe, the Stoxx 600 Index was 0.3 percent lower at 5:45 a.m. ET, with exporters and banks leading the losses. S&P 500 futures fell 0.2 percent.

Big Brexit week

At 4:30 a.m. ET tomorrow the U.K.
Supreme Court will rule
on whether parliament or the government can trigger Article 50 of the Lisbon Treaty to start the two-year countdown to the Britain's exit from the European Union. On Thursday, U.K. GDP data for 2016 will be released. Economists expect the economy 
performed well
 in the period, despite the referendum. Prime Minister Theresa May will become the
first foreign leader
to meet the new president on Friday, when she is due to visit the White House. 

What we've been reading 

This is what's caught our eye over the last 24 hours.

The Rising Risk of Central Bank Instability by Mohamed A. El-Erian | Bloomberg View - January 23, 2017

The Rising Risk of Central Bank Instability

Mohamed A. El-Erian
Separate comments last week from European Central Bank President Mario Draghi and Federal Reserve Chair Janet Yellen confirmed an ongoing change in the policy configuration facing their two systemically important central banks: The recognition of a transition in both economic conditions and prospects, along with questions about robustness and durability.
For now, their response is to maintain a stimulative direction to their policies, and to use verbal guidance that avoids rocking the boat. Although it's consistent with investor expectations, the forward-looking policy path may not be as secure and smooth as market pricing would suggest, however.
In both Europe and the U.S., nominal gross domestic product trackers have been ticking up on indications of both higher inflation and higher growth, while fears of a deflationary trap have receded. At the same time, the administration of President Donald Trump has repeatedly signaled its intention to increase infrastructure spending, and the prospects for that happening are higher now that there are Republican majorities in both houses of Congress.
The two speeches given by Yellen late last week, together with Draghi's news conference on Thursday, acknowledged the improved economic conditions. Still, both institutions are resisting, at least for now, the notion that this foretells inflation and asset pricing that leaves monetary policy "behind the curve." In addition, they were quite guarded in their comments on the prospects for fiscal policy in the U.S., preferring to wait for more concrete evidence of an actual shift.
The recognition of a changing economic situation and the possibility of looser fiscal policy have not proven sufficient, at least for the moment, to trigger a modification in policy signals. Instead, the two central bank leaders reiterated last week the guidance that was provided at earlier policy meetings, thereby seeking to retain considerable flexibility. In doing so, they reaffirmed a balance of risk preference that has been a constant of their policy approach since the 2008 global financial crisis.
In formulating policies -- especially in an unusually fluid global economy -- central banks must consider not just what can go well but also the mistakes they could end up making, albeit inadvertently. This entails an effort to limit possible known mistakes to those they can afford to make and undo relatively easily over time.
Facing an unusually timid cyclical response and a challenged structural one, central banks have again demonstrated that they would rather err on the side of too much stimulus rather than too little, despite the risks entailed for future financial stability and the efficient allocation of resources. And that is what traders and investors have gotten to expect after observing and internalizing central banks' preferences over the last few years. Indeed, in the case of the U.S., market pricing related to the policy rate still suggests less tightening in 2017 than the three hikes indicated by the Fed at its most recent policy meeting and reiterated in subsequent statements by individual Fed officials. These more subdued interest-rate expectations also extend beyond 2017, to the medium-term path of policy rates, again notwithstanding what Fed officials have signaled about that.
But the more central banks persist with this approach amid changing economic and fiscal conditions, the greater the potential need for a sudden shift in monetary policy that, while economically warranted, could be quite jarring for markets. And it is a possibility that investors may be underestimating as judged by market metrics, including measures of implied volatility.
While the upward movement in yields further out the curve for U.S. government bonds would likely be contained by arbitrage flows from Europe and Japan, the foreign exchange market does not benefit from such a moderating influence. As such, the dollar  could be being set up for some consequential volatility.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Mohamed A. El-Erian at
To contact the editor responsible for this story:
Max Berley at

U.S. Stock Market Future Indications: Wall Street Stocks set to Slip as Trump Keeps Investors on the Back Foot

Barbara Kollmeyer
U.S. stock futures tilted south on Monday as global markets grappled with uncertainty over the policies of U.S. President Donald Trump and concerns he’ll pursue a protectionist agenda.

Asian Markets at Close Report on January 23, 2017: Nikkei Falls as Other Asian Markets Make Gains

Willa Plank

Asian stocks generally rose Monday, but action still had much the same feel of the past two weeks — continued widespread investor caution about getting overly aggressive on the buying side as Donald Trump becomes U.S. president.