Markets Calm On May Day

Overview: The US S&P 500 failed to sustain the early upside momentum, but global equities are moving higher today, and there is some optimism on the trade front. Emerging market equities and currencies are also doing well today. Canada granted Meng Wanzhou bail shortly after a former Canadian diplomat was arresting China threatening to escalate the delicate situation. Some US companies have been fined for embargo violations in the past without any corporate officers being arrested. In any case, the fact that US-China trade talks have continued also aided sentiment. All the equity markets in Asia rallied more than 1% with the exception of a few smaller bourses and China. European markets are following suit. The Dow Jones Stoxx 600 is up (~0.6% near midday) for the second consecutive session. It has not posted back-to-back gains in a little more than a month. JGBs, Bunds, Gilts, and Treasuries are seeing slightly higher yields while peripheral European bonds and French bond yields are easing (one-three basis points). UK's May faces a vote of confidence among the Tory MPs today. Apparently, 48 letters were signed to trigger the challenge, but 158 is needed to win. Sterling is the strongest of the major currencies, but it is consolidating at the lower end of yesterday's ranges, stalling near $1.2550. The Swedish krona is the weakest of the majors, losing above 0.4%. Although it is closer to putting together a government three months after the election, the softer than expected inflation will frustrate the Riksbank desire to normalize monetary policy.  

Asia Pacific

There is still no sign that the arrest of the Huawei CFO or other steps the US is taking to crack down on Chinese hackers and intellectual property theft is going to stall the still ill-defined G20 US-China trade talks. China is expected to soon if not already begun to purchase US soy.  Reports suggest the process there is already underway to unwind the retaliatory tariff it imposed on US autos. For more than 16 years, the US and China had structured regular trade talks that were canceled by the Trump Administration. The resumption of discussions and the bringing the Chinese tariff back to 15% (from 40%) is a return to the status quo ante. Trump has also shown some willingness to keep the talks going. He indicated that if necessary he to interfere with the Huawei incident threatened (which it apparently is not).  

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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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