Post-Holiday Blues In China While UK Sends Navy Vessels To Deter French Fisherman Blockade Of Jersey

Overview

China returned from its extended May Day holiday to find fresh confrontation over its domestic and international actions.  Its equity market fell even though most of the other large Asia Pacific bourses moved higher.  European markets are heavier after the Dow Jones Stoxx 600 posted its biggest gain (1.8%) in nearly two months yesterday.  US futures are firmer, including the NASDAQ, which fell for the fourth consecutive session yesterday, its longest slide since last October.  The US 10-year yield also fell for the fourth session in a row yesterday, the longest decline since last September, but is stable near 1.57%.  European yields are hovering around little changed levels.  The Norwegian krone is among the strongest of the major currencies  (~0.3%) after the central bank reiterated intentions to raise rates later this year.  Ironically, the Swiss franc is outperforming the krone even though the Swiss National Bank is expected to be among the last major central banks in Europe to raise rates.  The Antipodeans and sterling are trading with a slight downside bias, while the Canadian dollar rises to its best level since September 2017. Helped by the firmer euro, most Eastern and Central European currencies are firmer, while most Asian emerging market currencies, but Indonesian rupiah, Indian rupee, and Philippine peso are softer.  The JP Morgan Emerging Market Currency Index is posting gains for the third session this week.  Gold is edging closer to $1800 again that held it back earlier this week.  In fact, the yellow metal has not been above $1800 since late February. Oil is a little softer,  with the June WTI contract mostly holding above $65 a barrel.  Yesterday it retreated after reaching roughly $66.75 (GLD, OIL).  

Asia Pacific

We have argued that President Xi is undermining the strategic interests of China and is isolating it on the international stage.  As China's long May Day holiday ended, the news stream underscores this concern on several fronts.  Consider:  The investment pact with the EU that was seven years in the making has not been ratified, and it might not be any time soon.  The EU denies it has suspended the ratification process (individual members and the EU Parliament), but the interest and ability to do so is clearly waning.   The G7 foreign ministers' statement was critical of China on many familiar grounds and advocated meaningful participation by Taiwan in the World Health Organization.  This is partly in preparation for the G7 summit next month in Cornwall. 

Australia, which is not a member of the G7, is reviewing the Port Darwin lease to China.  This follows its recent decision to cancel two deals that the State of Victoria had signed under the Belt Road Initiative.  New Zealand, which is towed a less aggressive line than Australia, formally condemned China for "abuse of the Uyghurs" while still shying away from calling it "genocide."  New Delhi has decided to ban Chinese companies from conducting 5G trials in India.  Besides being some rhetoric of displeasure, Beijing has suspended the formal economic dialogue with Australia.  This 2014 arrangement has been inactive for a few years and appears largely symbolic.  Beijing may step up efforts to encourage consumer boycotts of some "Western" brands.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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