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Pound tanked despite solid retail sales
The big news of the day came from the PBoC. Despite efforts to revive economic growth, the PBoC looked unhappy about a too-rapid growth in credit and announced to raise the RRR (Reserve Ratio Rate) for banks that boosted lending too fast. It has been a warning that the PBoC will not tolerate an undesired overheating in the economy.

The FTSE reversed early losses with Coca-Cola ahead of the game after the announcement of a solid 13.3% rise in its net full year profits. The miners are mixed, while the retailers trade south in London. Tesco and Sainsbury’s are down by 1%, and Marks & Spencer is 0.55% lower despite a solid 2.3% surge in UK retail sales in January.

The pound is sold aggressively into the European open as the Brexit summit extended to a second day. Even the solid retail sales data couldn’t give the pound a smile this morning.

The political risks are hard to price in at the moment, yet there is clearly little appetite in building fresh long and/or short positions before more clarity on the issue.

From a monetary policy perspective, several BoE officials voice their concern about too-dovish expectations regarding the BoE’s policy outlook. BoE’s Waele, known to be a hawkish MPC member, said he ‘would be surprised if the BoE took as long to hike rates as the market expected, markets may well turn out to be right though.’ The market gives no probability for a BoE rate hike in 2016.

Gold enjoys risk-off inflows

Gold bounced higher as risk aversion vis-à-vis the world economy keeps investors seated on cash and increasingly on gold. The negative correlation between gold and risky assets rises, as high volatility and little visibility in the equity market combined to low-to-negative yielding monetary policy setting, give a good reason to invest in gold. The 40-day correlation against the S&P 500 stocks is now past 45%.

The $1200 should give some support for a recovery toward 1250/1260 (Feb 11 peak). The Fibonacci’s 38.2% retracement on Dec-Feb rally should continue lending support to the current bullish development.

Yen appreciates.

In Japan, department store sales slumped by 1.9% y/y in January. Nikkei reported that Japanese corporate profits could slow on stronger yen. Japanese stocks ended the week on a negative note. Nikkei lost 1.42%, Topix retreated 1.48%. There are mounting vows on BoJ’s negative rate strategy and it is incremental efficiency. The dollar weakened past 113 yen in Tokyo. The combination of a risk-off trading environment and softer US yields is somewhat of a challenge to depreciate the yen.