Monday, May 13, 2024

Capital Markets: "Consolidative Tone to Start the Week"

What he said.

From Marc Chandler at Bannockburn Global Forex:

Overview: The new week has begun off quietly. The dollar is in narrow ranges against the G10 currencies, +/- 0.15% as the North American market prepares to open. The Dollar Index is trading inside the narrow pre-weekend range. With softer US CPI, retail sales, and industrial production due this week, we have a downside bias for the greenback. Most emerging market currencies are firmer. A few Asian currencies, including the Chinese yuan and Philippine peso are among the exceptions.

Equity markets are mixed. The MSCI Asia Pacific Index was flat last week after rally more than 6% in the previous two weeks. Japanese, Chinese, and South Korean markets traded heavier today, while other large bourses in the region advanced. Europe's Stoxx 600 is threatening to snap a six-day advance and is slightly softer in late morning turnover. US index futures are a little firmer. The S&P and NASDAQ have three-week rallies in tow. The BOJ offered to buy few JGBs, and this pushed the 10-year yield up a few basis points. China is preparing to sell CNY1 trillion (~$138 bln) long-term bonds (20-50 years) starting at the end of the week. European benchmark 10-year yields are off 1-2 bp. The US 10-year Treasury yield is a little softer after settled near 4.50% before the weekend. Gold peaked before the weekend near a three-week high ($2378.50) but is heavier now and trading below last Friday's low. Nearby support is seen around $2334. June WTI is recovering from a three-day low set earlier today near $77.80. It recorded an outside down day before the weekend, having been turned back from $80. Consolidation is the theme.

Asia Pacific
China reported April inflation measures over the weekend. Consumer prices rose 0.3% year-over-year, an insignificant change from the 0.1% reported in March. Month-over-month, CPI rose by 0.1% after tumbling 1.0% in March. The conventional narrative sees weak demand as the cause of low inflation in China. While there is a kernel of truth to it, it is overstated and obscures other elements. For example, China's CPI is heavily weighted toward food for which demand is not particularly elastic. Food at home accounts for 8.7% of the US CPI, for example, bumped by the 2020 pandemic behavior. In China, food is a fifth of the CPI basket. Food prices are of 2.7% year-over-year. Excluding food and energy, core CPI rose 0.7% year-over-year in April (0.6% in March). Also, frequently in China it appears that there is often intense competition domestically and the price wars drive down prices. The survivors are national champions and become global players. Producer price deflation continues, but at a moderating pace. The 2.3% year-over-year decline in April is the least since February 2023, and three-month average has slowed for the past three quarters. Separately, China also reported lending figures and aggregate financing show an unexpected and rare contraction. However, this seemed to reflect technical issues and is unlikely to be the signal of the direction of lending. The bank lending did increase to CNY10.19 trillion year-to-date from CNY9.46 trillion. The PBOC sets the benchmark one-year medium-term lending facility rate this week, but officials seem in no urgency to cut rates....