US And Europe May Announce Tariff Truce

Overview: There are two general developments as the busy week gets underway. First, despite accelerated price readings in the US (CPI, PPI, import prices, and University of Michigan survey), US rates are soft. The 10-year yield is near 1.61% after rising to 1.70% after the CPI surprise last week. This, in turn, appears to be limiting the dollar's ability to recover much. However, it is trading a bit firmer against the dollar-bloc currencies and the Antipodeans. Emerging market currencies are consolidating the pre-weekend losses, while the Turkish lira and Hungarian forint are modestly higher. Second, equities are heavy. China's data did not inspire, but Chinese equities led the mixed Asia Pacific session higher, along with Hong Kong and India. Japan, South Korea, and Taiwan equities fell. Both Singapore and Taiwan are tightening social restrictions, and although Singapore shares advanced, Taiwan's nearly 3% decline adds to last week's nearly 8.5% drop. Europe's Dow Jones Stoxx 600 slipped 0.5% last week and is struggling at slightly lower levels today. The S&P 500 rose 2.7% in the last two sessions, but the futures are trading with a slightly heavier bias now. Even with the Colonial Pipeline re-opening, oil prices remain firm, and the July WTI contract is holding above $65.It has a three-week advance in tow. Lower rates and some suggest the sell-off in leading tokens in the crypto space is lifting gold prices above $1850 and the 200-day moving average for the first time since early February.  

Asia Pacific

China's data is difficult to read as the year-over-year comparisons are distorted. Today's flurry of data generally missed expectations, but the recovery seems intact and underscores the official recognition that the economy is "unbalanced and unstable."April industrial output rose 9.8% after a 14.1% pace in March. Compared with the same period last year, fixed asset investment increased by 19.9% in the first four months of the year. It missed the median forecast in the Bloomberg survey barely. It had grown by over 25% in Q1 21 over Q1 20. Property investment remained strong, rising 21.6%, which was a little better than expected. Unemployment fell to 5.1% from 5.3%, which was also lower than economists anticipated. The biggest miss was retail sales, which rose by 17.7% year-over-year, well off the 25% pace that the median forecast projected. We suspect there is no major policy implication. Officials have curbed lending but do not seem to be in any hurry to raise rates.  

Japan's third state of emergency went into effect yesterday. The area covered by the emergency (Tokyo, Hiroshima, Okayama, and Hokkaido) covers roughly 40% of the world's third-largest economy and runs to the end of the month. The seven-day average of infections is at a new high for Japan. There will be economic and political consequences. Japan reports Q1 GDP first thing tomorrow in Tokyo, and there is little doubt that the economy contracted after growing at an 11.7% annualized rate in Q4 20. The issue is Q2 growth, and the median forecast in the Bloomberg survey of a 4.5% annualized expansion appears optimistic. 

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Read more by Marc on his site Marc to Market.

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