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The US dollar began Asia on a firm note, extending its pre-weekend gains against the euro and Australian dollar, before consolidating with a somewhat softer bias later in Asia and through the European morning.

The Martin Luther King holiday in the US deters strong price action for the remainder of the session, though if there is one thing to watch, we'd suggest the 100-day moving average for the euro. It is found just below $1.3570 today. It had finished last week below that average for the first time since September 5, which itself was the first time since mid-July. That means over the past six months a pullback to the 100-day moving average has been a new buying opportunity.

Equities are mostly lower, though there are a couple of noteworthy exceptions. In Asia, Korea, Taiwan and India bucked the trend. In Europe, Switzerland and Ireland are posting small gains. Bond markets are mostly firmer. Of note, the general out performance of Italy and, especially Spain continues. We note that Irish bonds, though are leading the way, following Moody's upgrade as the 10-year benchmark yield falls 18 bp to 3.24%.

The money market rates in both the euro area and China were squeezed sharply higher last week, but both appear to have eased slightly today. The PBOC reportedly is offering small banks, who are typically most vulnerable, short-term cash ostensibly to prepare for the lunar new year liquidity demand. Euro area money market rates are mostly softer, but the underlying pressure likely remains. Recall EONIA was well above the 25 bp refi rate during the second half of last week.

China reported a series of macro economic data that taken together show the economy is slowing, though not very quickly. The economy grew 7.7% in Q4. The Bloomberg consensus was for 7.6% after 7.8% in Q3. Industrial output was 9.7% above year ago levels down from 10% in November and slightly below expectations (9.8%). Retail sales were in line with expectations, rising 13.6% from a year ago, down from 13.7% in November. Fixed asset investment slowed to 19.6% in December from 19.9%. The consensus had anticipated a smaller decline.

Surely, the market participants are sufficiently skeptical of the precision of Chinese economic data to reduce the sensitivity to such generally minor changes. It is also difficult to make a strong case yet for the kind of re-balancing of the economy that the Chinese government is trying to engineer. It is a multi-year process and data 2 months after the important Third Plenary session may be too soon to expect clear results.

Other than the Chinese data, the news stream has been light. The highlights include a small downward revision in Japan November industrial output figures to show a 0.1% decline rather than an increase of the same magnitude. Italy reported a much stronger than expected increase in industrial orders (2.3% in November offsetting decline of same magnitude in October. The market had looked for a flat report). UK Rightmove Jan house price index rose 1.0%. There are some reports suggesting that the IMF is considering increasing its 2014 GDP forecast for the UK economy to 2.4% from 1.9%, according to Sky News.

There were three other developments that caught our attention, even if the market impact is less clear. First, we note that New Zealand has been hit by a 6.3 earthquake in the North Island. The immediate reports suggested limited damage. The New Zealand dollar was trading with a heavier bias prior to the news and extended those losses briefly, bringing the retreat from last week's high to about 2 cents, before recovering to be little changed by midday in Europe. New Zealand reports Q4 CPI figures first thing in Wellington on Tuesday (~21:45 GMT today). A 0.1% decline on the quarter for a 1.5% year-over-year pace is expected. A rate hike at the end of the month is seen as a reasonably strong risk, but not the odds-on favorite scenario in the market.

Second, as anticipated here, Italy's center-left leader Renzi has found common cause with Berlusconi for electoral reform. Both representing large blocs favor proportional representation based on a large number of small constituencies with the winner of at least 35% of the vote drawing a bonus of 15-20% of the seats in the Chamber of Deputies. Small parties would be required to receive at least 5% of the vote to secure representation. Of course many small parties, including Alfano's new center-right rump, which is needed to support the Letta government are furious.

Third, the Troika has rejected Greece's 2014 fiscal plan. However, Greece does not face a bond maturity until May, which means that it can afford to drag out the negotiations. There is increased talk of a cabinet reshuffle in Greece and Syriza is demanding an election next month. The Greek stock market was among the strongest in Europe last year and has begun this year on strong footing as well. However, today it shed about 2.2%. Over the past 16 months, foreigners acquired 2.44 bln euros of Greek shares and now account for just shy of 50% of the market (49.6%).

Source: Consolidation Gives Dollar Softer Bias