Hopes of Greater Security through Strategic Partnerships

Strategic partnerships are becoming central to the management of international security in the Asia-Pacific region. All the major powers and many of the minor ones have entered into multiple partnerships with both friends and potential strategic rivals.

China, for instance, has cultivated close to 50 strategic partnerships across the region and beyond, with nations as diverse as Afghanistan, Australia and India. By contrast, India has about 20 or so partnerships and Japan around 10.

Japan's Kuroda and the BOJ are in a Corner

Following today's FOMC meeting, the central banks of Japan, Switzerland, and the UK meet tomorrow.  The SNB will keep its powder dry to be able to respond to the results of the UK referendum if needed.  The Bank of England is also on hold. 

Your FOMC Primer

The FOMC meeting later today, with updated economic projections and a press conference, is the key event of the day, even though three other central banks meet over the next 24 hours.  Investors should know four things before the FOMC meeting.  

Positioning for Life after the UK Referendum Continues

A spate of opinion polls showing a tilt toward Brexit, and the leading UK newspaper urging the Leave vote on the front page, keep the global capital markets on edge.  Equities are lower, though of note ahead of the MSCI decision first thing Wednesday in Asia, Chinese shares eked out a small gain.

Core bond yields are 4-5 bp lower, which pushes the 10-year German bund yield into negative territory for the first time.

Short-term Volatility is Up, Encouraging Capital Market 'Risk-Off'

The risk that the UK votes to leave the EU next week is the dominant force in the capital markets.  It is a continuation of what was seen at the end of last week.  Sterling fell 1.4% against the US dollar before the weekend and is off another 1% today.  A week ago, it traded as high as $1.4530.  Now it is nearing $1.41.

It's All about the Fed...and other Central Banks

A couple of weeks ago, the four central banks that meet in the coming days were thought to be a big deal.  Numerous Federal Reserve officials were preparing the market for a summer hike. Risks of a new downturn in Japan spurred speculation that BOJ would ease policy.  

On the other hand, the neither the Bank of England nor the Swiss National Bank were expected to move ahead of the UK referendum on June 23. Besides providing extra liquidity to the banks in the ahead of the vote, the BOE was understood as being in a reactive posture as was the SNB. 

Technically Speaking: It's Still the FOMC and UK Referendum

The US dollar traded heavily in the first few days of last week as investors continued to respond to the poor employment report.   However, Yellen's willingness to defer judgment while noting the underlying economic strength, JOLTS and the initial jobless claims, coupled with the ongoing anxiety over the June 23 UK referendum helped the dollar recover in the second half of the week. 

The Business Council of Australia is on the Election Hot Seat

If the Coalition loses this election there will be some insiders pointing fingers at the Business Council of Australia.  There have been times in the last three years when the Coalition has held the line on policies that looked to experienced observers like political suicide. To understand the power behind the throne a good place to start is the advocacy of Australia’s most powerful business lobby.