Stocks Slide But Little Demand For Safe Havens

Overview: The sell-off in US shares yesterday has triggered sharp global losses today, and there is no flight into fixed income as benchmark yields are higher across the board. Nor is the dollar serving as much as a safe haven. It is mostly softer against the major currencies. Japan and Taiwan led the Asia Pacific equity markets lower. Chinese shares stand out with a recovery in late turnover in the region to allow a higher close. In Europe, the Dow Jones Stoxx 600 is flirting with a 2% drop, which would be the largest this year, and in the US, the sell-off is continuing, and the S&P 500 and NASDAQ are poised to gap lower at the opening. The US 10-year yield, which settled last week below 1.58%, is at 1.61% today, while European benchmark yields are 3-4 bp higher. In the foreign exchange market, the Swiss franc, the Japanese yen, and the US dollar often touted as safe havens weak, while the Scandis and euro lead on the upside. The freely accessible emerging market currencies, like the Russian ruble, South African rand, and Mexican peso, are firm. Central and Eastern European currencies are generally doing better than Asian currencies. Gold is a little changed around $1836 and continues to face resistance near $1850.June WTI is about 1% lower and is approaching its 20-day moving average (~$63.65), which it has not closed below since mid-April. The Colonial pipeline attack is attributed to Russia-based Darkside, and a shortage of gasoline is being seen. Reports suggest it will take a few more days to fully re-open it.  

Asia Pacific

The PBOC is unlikely to feel any special urgency to normalize monetary policy after today's inflation report.  April's headline CPI rose by 0.9% from a year ago, a touch less than expected after a 0.4% gain in March. In the month, they fell by 0.3% after a 0.5% decline in March. A key development behind the subdued reading is that food price inflation has broken. Food prices are off by 0.7%year-over-year. It is the third consecutive decline. Pork prices are over a fifth lower than a year ago. Non-food prices are up 1.3%. The core rate stands 0.7% above year-ago levels. On the other hand, producer prices rose 6.8% year-over-year, which was slightly faster than expected, accelerating from a 4.4% rate in March. Iron ore and non-ferrous metal prices were a key driver and do not appear to have peaked.  

Japan's household spending surged by 6.2% in March, more than four times the gain projected by the median forecast in Bloomberg's survey. However, it is a bit of a fluke. Moreover, the surge appears to have occurred between formal emergencies, which suggests several governors want it to be extended now nationwide. It is also seen as unsustainable because real disposable income fell (0.9%) for the fifth consecutive month. This points to families going into savings to pay for consumption.  

The US and G7 have called on the World Health Organization to invite Taiwan to its May 24 meeting. It sounds like it ought to be uncontroversial, but it is anything but. There are some international organizations that only countries can join. Taiwan is not a member of these organizations. The US and G7 talk about the international rule of law. The World Health Organization can invite Taiwan as an observer at the May 24 meeting, but the rules require a vote of the members, and the US and G7 would likely lose the vote. China is opposed, of course. It worries that it is the thin edge of wedge or a slippery slope that will lead to Taiwan being recognized as a country.  

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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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