From Marc to Market:
Overview: The short squeeze that lifted the US dollar ahead of the weekend has seen limited follow-through buying, and instead a consolidative tone emerged. Europe is searching for direction and perhaps waiting for US leadership after a quiet Asia Pacific session, with several centers closed for holiday today (China, Hong Kong, Taiwan, and Australia). Japanese and South Korean equities advanced. Europe's Dow Jones Stoxx 600 is up for the seventh consecutive session. Gains in information technology, energy, and utilities are helping to lift the benchmark to new record highs. US equity futures are posting minor gains. Benchmark 10-year yields are slightly firmer. The US yield is at 1.46% after shedding 10 bp last week, the most since last June. Outside of the Norwegian krone (~+0.25%) and sterling (~-0,20%), the major currencies are +/- less than 0.1%. Emerging market currencies are also mostly quiet. The Turkish lira is extending its recovery. It is the seventh advancing session. Most of the other freely accessible and liquid emerging market currencies have a heavier bias today. The JP Morgan Emerging Market Currency Index is off for a second consecutive session, something it has not done for a little over a month. Gold dropped $21 ahead of the weekend and is off around another $20 today. It tested support around $1855. The 200-day moving average is near $1840. Oil is trading higher, and the July WTI is at new highs approaching $72.00.
Asia Pacific
The G7 closed ranks just as the US political elite have done with a shared approach to the challenge presented by Beijing. "America is back" would have little meaning if it did not have a mission, and the mission appears largely defined in the negative to check China. US, Europe, Canada, and Japan's disapproval of Beijing's domestic and foreign policy is clear, and it does not appear to have much impact.
An alternative to China's Belt Road Initiative is beginning to take shape. It is a new infrastructure initiative for low and middle-income countries that mobilizes private investment for projects, which is consistent with the growing interest in ESG in high-income countries. The fact that China's loans are not at concessionary rates, and has taken possession of collateral (e.g., Hambantota Port), may create opportunities for the new initiative. However, the conditionality often associated with the US, Europe, and the multilateral lenders, poses its own hurdles. The G7 did come together to offer one billion vaccines to poor countries by the end of next year, directly or indirectly through COVAX, but this seemed to disappoint expectations because this represented only a new commitment of 613 mln doses. The gap between this and the 11 bln vaccines that the World Health Organization says are needed seems stark for a virus that continues to mutate.
China had hoped to neutralize Europe with the investment accord struck last year, a few weeks before Biden was sworn in. Italy had signed on to the Belt Road Initiative. The UK Tories have been pulled between the commercial opportunities offered and the abhorrence of Beijing's actions. European politics are fluid, with German elections later this year and French elections next year. France holds local elections on June 20, with run-offs a week later. Le Pen appears to be gaining on the center-right. Germany's Greens are emerging as the country's second-largest party and take a harder line against China than the CDU or SPD. The investment treaty has been frozen and has no prospect of being approved any time soon. Draghi, who is the latest in a storied history of unelected prime ministers in Italy, has taken a firmer line against Chinese companies acquiring Italian companies. Still, China continues to take advantage of whatever fissures it can. On his way to the NATO meeting in Brussels, Turkey's Erdogan announced that its currency swap line with Beijing increased to $6 bln from $2.4 bln. After running down reserves defending the lira, Turkey sought help from Europe and the US with little success. Although China has currency swap lines with around three dozen countries, they are hardly ever used. Ankara tapped the yuan swap line last June....
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