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Sterling Shines as Campaign to Block No-Deal Brexit Gains Momentum

Sterling is the star performer today as campaign to block no-deal Brexit in the UK gathers momentum. Some upside acceleration is seen after the Pound takes out near term resistance against Dollar, Euro and Yen. New Zealand Dollar is following as the second strongest as boosted by stronger than expected CPI. Though, it handed the top spot to the Pound in early US session. On other hand, as risk sentiments stabilized, Yen is trading as the weakest one, followed by Swiss Franc. Canadian Dollar turns softer after weaker than expected retail sales. But loss in the Loonie is so far limited.

Technically, GBP/USD and GBP/JPY reaches recent rally today. GBP/USD is heading to 1.3174 key resistance. GBP/JPY is targeting 143.93 first and could march towards 150 handle later. EUR/GBP is now targeting 0.8620/55 support zone. USD/JPY also breaks 109.89 resistance to resume recent rebound. Now, it’s EUR/JPY’s turn to take on 125.09 resistance. One more level to watch is 0.7116 in AUD/USD. Break should confirm near term bearish reversal.

In other markets, FTSE is currently down -0.33%. DAX is up 0.32%, CAC is up 0.46%. German 10-year yield is up 0.010 at 0.248. Earlier in Asia, Nikkei closed down -0.14%. Hong Kong HSI rose 0.01%. China Shanghai SSE rose 0.05%. Singapore Strait Times dropped -0.68%. Japan 10-year JGB yield rose 0.0034 to 0.004, turned positive. US futures point to higher open. There was some jitters on renewed concern over US-China trade negotiations yesterday. But traders were quickly calmed by White House economic advisor Larry Kudlow’s comment that “the story was unchanged, We are moving towards negotiations.”

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Released from Canada, headline retail sales dropped -0.9% mom in November versus expectation of -0.5% mom. Ex-auto sales dropped -0.6% mom versus expectation of -0.4% mom. From US, house price index rose 0.4% mom in November versus expectation of 0.2% mom.

UK Labour highly likely to back amendment to block no-deal Brexit

The campaign to block a no-deal Brexit in the parliament is gaining momentum today. Labour lawmaker Yvette Cooper put an cross-party supported amendment proposal earlier, to try to impose a deadline of February 26 for Prime Minister Theresa May to get the Brexit deal approved by the parliament. Otherwise, there would be a parliamentary vote on delaying Brexit. The second most influential Labour member John McDonnell said today the party is “highly likely” to back Cooper’s amendment. He added “Yvette Cooper has put an amendment down which I think is sensible”.

However, UK Prime Minister Theresa May criticized that “What we have seen is amendments seeking to engineer a situation where Article 50 is extended – that does not solve the issue, there will always be a point of decision. The decision remains the same: no deal, a deal or no Brexit”.

Regarding no-deal Brexit, Moody’s senior vice president Sarah Carlson warned that “from a sovereign credit perspective, if you end up with a ‘no deal’ Brexit that is a sign that something institutionally has really quite profoundly failed.” And, that would weigh negatively on UK’s creditworthiness.

EU Moscovici: Brexit has to be dealt with in London first

European Commissioner for Economic and Financial Affairs Pierre Moscovici reiterated the EU’s stance that regarding Brexit, the ball is in UK’s court now. He said “Certainly the EU is there, the EU is waiting, the EU is ready but first we need to know clearly what are the British intentions and we need some clarifications from London”.

He added that “Of course the door is always open for discussion but it’s not up to us to tell now the British side where it wants to go. The ball clearly is in the British side again. It’s not a problem that can be solved by Brussels, maybe in Brussels later, but it has to be first dealt with in London.”

Also on the possibility of hard Brexit, Moscovici said “Nobody wants a no-deal (Brexit), that is clear. The British parliament doesn’t want a no-deal, the British government doesn’t want a no-deal, and the EU is not willing a no-deal, so we need to explore all options which are not a no-deal.”

BoJ stands pat, sharp downward revision in fiscal 2019 inflation forecast

BoJ left monetary policies unchanged today as widely expected. New economic projections are also released with upgrade in fiscal 2019 and 2020 GDP forecasts. But inflation forecasts was lowered rather sharply for fiscal 2019.

The short term interest rate is held unchanged at -0.1%. And under the yield curve control frame work, BoJ will continue to kept 10-year JGB yield at around 0%, with some upward and downward movements allowed. The annual amount of JGB purchase will be kept at JPY 80T.

Member G. Katakoa dissented as usual, pushing to strengthen monetary easing. Y Harada also dissented again, criticizing that allowing the long-term yields to move upward and downward to some extent was too ambiguous

On economy, BoJ maintained that “Japan’s economy is likely to continue on an expanding trend through fiscal 2020.” Also, “overseas economies are expected to continue growing firmly on the whole, although various developments of late warrant attention such as the trade friction between the United States and China.”

In the new GDP projections, comparing with October forecasts:

  • Fiscal 2018 is revised to 0.9% to 1.0% (median 0.9%), down from 1.3% to 1.5% (median 1.4%).
  • Fiscal 2