ECB Meeting And US CPI: Transitory Impact

The ECB meeting and the US May CPI report is at hand. The US dollar is consolidating at a higher level against most of the major currencies.  Softer than expected, inflation readings are weighing on the Scandis, which are bearing the brunt. 

The US 10-year yield closed below 1.50% for the first time in three months yesterday, and this may have helped underpin the Japanese yen.  European benchmark yields are slightly firmer today, while bond yields in the Asia Pacific region fell as they played catch-up to yesterday's US yield slump.  The large bourses in the region advanced, though Japan was mixed.  Europe's Dow Jones Stoxx 600 is little changed and has a four-day rally in tow ahead of the ECB meeting.  US futures are sporting a slightly softer profile.  Falling for the third consecutive session, gold has made new lows for the week near $1876.  Ahead of OPEC's monthly report, June WTI is consolidating below $70 a barrel.  Steel rebar and iron ore futures advanced for the second consecutive session in Asia, while copper is off for the third session.  The US Department of Agriculture releases its monthly assessment of global supply and demand later today. The drought in Brazil and in the western part of the US may give the reports a cautious tone.  

Asia Pacific

US-Chinese commerce officials talked today.  It is part of the resumption of the high-level dialogue. However, the suggestion that the talks rallied Chinese stocks today seems like a stretch. More important, reports indicate that the Biden administration is considering a protective tariff on rare earths to help promote the developments of a domestic industry.  In particular, neodymium magnets, which are ubiquitous, including in electric vehicles, and nearly 90% come from China.  

Meanwhile, China has boosted its orders for US agriculture products and is seen accounting for almost a quarter of US farm exports.  Beijing agreed to buy $80 bln of US agriculture products over two years and, as of April, was estimated to be more than 20% behind. However, it is stepping up its pace.  

China reported May lending was strong despite the official efforts to curb it.  Bank loans edged up to CNY1.5 trillion from CNY1.47.  It is not much, but economists had anticipated a decline.  Aggregate financing, which added the lending by the shadow banking, which includes the wealth management arms of the large banks, rose to CNY1.92 trillion from about CNY1.85 (CYB).  

The Trump administration suspended trade and investment talks with Taiwan, but the Biden administration is set to resume talks as early as today.  Washington seems purposely pushing hard, and many do not seem to appreciate that its measures may be putting Taipei at greater risk.  Consider that it used a military plane to deliver 75k vaccines to Taiwan, which is an unnecessary provocation.  Three US Senators were aboard the flight, and at least one confirmed that if Taiwan was attacked, the US would come to its aid.  This confuses the purpose of the US strategic ambiguity.  Beijing's contingency plans would always have to recognize this possibility, but the origin of the opaque position was aimed at Taipei, not Beijing.  It was to discourage a unilateral declaration of independence.  China responded with an amphibious landing drill near Taiwan.  This appeared to be an escalation of Beijing's show of force.  It appears to be concerned that the US (and its allies) are threatening to alter the status quo.  

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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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