Overview: It is the height of irony or tragedy that what was offered as a non-binding referendum on UK’s membership in the European Union to bring the country, or at least the Tory Party, together is the most destabilizing event since the UK unceremoniously quit the European Exchange Rate Mechanism more than a quarter of a century ago. Sterling has stabilized for the moment, but reports indicate that Prime Minister May is unlikely to survive a vote of confidence. Asian equities were mostly higher, but Japan and Taiwan markets were dragged down by the chipmakers following the more news from Nvidia and Applied Materials.  European shares are firmer, and the Dow Jones Stoxx 600 is about 0.3% higher, leaving it around 1.65% lower on the week. US shares are trading lower, and the S&P 500 will begin the session off about 1.8% for the week after gaining about 4.5% over the past two weeks. Bond markets are mixed. Yields slipped in Asia, and the 10-year JGB yield has finished the week below 10 bp, the previous BOJ cap. Core bond yields in Europe are slightly firmer, with the UK’s 10-year Gilt yield up a couple of basis points after falling 13 bp yesterday. The US 10-year yield has not risen since November 8 but is threatening to end the streak today. In the foreign exchange market, the US dollar is little heavier against most of the major currencies, but the Australian and New Zealand dollars which are paring this week’s gains. Oil is trading higher for the third consecutive session.  

Asia Pacific

Many participants want to believe that the bellicose rhetoric from the White House is part of the way it negotiates and that an agreement with China is likely. After not formally engaged in talks in recent months, the resumption of discussions last week is spun as “increasing efforts.” The same people who negotiated the agreement earlier this year, which was later rejected by Trump, are leading the talks now.  China formally responds to US and stakes out its position as it has been for some time, and investors are told they are compromising. On the other hand, as US importers tried to build up some inventory ahead of new tariffs, the US bilateral trade balance with China widened to new a new record and some cite this as evidence the US is losing the trade war. Separately, China has reduced the tariff on US LNG to 10% from 25%, ostensibly because it was hurting itself.