Capital Markets: "New Optimism Lifts Sentiment Ahead of the Weekend "

From Marc to Market:

Overview: China's new pledge to meet its trade commitments under the Phase 1 agreement with the US coupled with signs that the virus flare-up in Beijing may have been brought under control is helping underpin risk appetites today. Led by Chinese shares, equities in the region rose, giving the MSCI Asia Pacific Index a four-day advance to carry into next week. European stocks higher, leaving the Dow Jones Stoxx 600 in its recent ranges. US shares are also firm. Bond markets are quiet. The peripheral premiums over Germany narrowed 7-10 bp this week. The US 10-year yield is little changed this week around 71 bp. The dollar is mostly softer, sterling has been unable to recover from yesterday's slide, even though May retail sales jumped almost twice what economists had forecast. South Africa, Russia, and Mexico are leading the liquid accessible emerging market currencies higher. On the week, the JP Morgan Emerging Market Currency Index is off about 1.4%, its second consecutive weekly drop of over 1%. Gold is firmer, but at $1730, it is little changed on the week. Oil prices are pushing higher for the fourth session this week. July WTI finished last week near $36.25 and has pushed above $40 today to approach the high set earlier this month near $40.45.

Asia Pacific
Although US President Trump threatened to completely de-couple from China, Secretary of State Pompeo met Chinese officials in Hawaii, and the trade deal was re-affirmed. Through the first third of the year, China's agriculture imports from the US have reached about 13% of the goal. The depreciation of the Brazilian real has made its soy and energy exports more attractive.

Japanese core consumer prices were 0.2% lower than a year ago in May, the same as in April. Weakness in energy prices and weak consumer demand were the main drivers. Headline CPI remained at 0.1%. When stripped of fresh food (core rate) and energy, Japan's CPI rose by 0.4%, up from 0.2% in April. The BOJ's efforts, as illustrated by this week's measures, are focused on lending to the corporate sector more so than taking new steps to boost price pressures more directly....

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....Quadruple-witching may inject extra volatility in the equity market today. Stock index futures and options, and stock options and signal stock futures contracts expire today. This includes around $1.8 trillion of S&P 500 options. Support for the S&P 500 is seen near 3080-3085. The week's high is around 3153.50, and then we have emphasized the 3181.50 area, the top of the gap created last week. Three Fed officials speak today include the leaders, Powell and Clarida, as well as Rosengren. Separately, Canada reports April retail sales figures. The most significant economic blow likely came in April, and retail sales are expected to have fallen by around 15% after a 10% decline in March.... 

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