From Marc to Market:
Overview: Market participants appear to be biding their time ahead of tomorrow's US jobs report as they digest recent developments. The dollar is firmer, equities are mixed, and benchmark bond yields are a little firmer. China and Hong Kong shares continue their recent underperformance, while most of the large markets in the Asia Pacific region edged higher. Europe's Dow Jones Stoxx 600 is easing from record highs. The utility and materials sectors are the largest drags. US futures are on the downside by around 0.25%. US yields and the dollar did not sustain the increase inherited by North America yesterday, but the 10-year is testing 1.60% today from below, and European yields are 1-2 bp higher. For its part, the dollar has come back bid but in well-worn ranges. The Antipodeans and the Scandis are the softest, surrendering about 0.25% through the European morning. Emerging market currencies are also mostly lower, led by the Turkish lira, despite softer than expected May CPI (16.59% year-over-year down from 17.14% in April) and central and eastern European currencies. The heavier NOK tone is not a reflection of oil prices, which are firmer, with the help of a reported drawdown of 5.3 mln barrels by API. Other industrial commodities are firm. Iron ore has a five-day advance in tow, and steel rebar has risen in four of the past five sessions. Copper is posting is edging higher for the first time this week. Yesterday, lumber prices snapped a six-day 12% slide. Gold has already traded on both sides of yesterday's range, and if its 0.8% decline is sustained, it would be the largest loss in three weeks. A break of $1882 would likely signal the end of the rally that began at the end of March near $1678.
Asia Pacific
China's Caixin service and composite PMI missed expectations at 55.1 and 53.8, respectively. Although both slipped from April, they are still consistent with steady growth. The decline in Japan's PMI moderated in the final reading, but both the service and composite remain below the 50 boom/bust level. The final service PMI stands at 46.5, up from the 45.7 flash estimate but down from 49.5 in April. The composite rose to 48.8 from 48.1 initially and 51.0 in April.
Australia's final PMI was also revised lower but remains strong. The service PMI stands at 58.0 rather than 58.2 as the preliminary estimate had it and 58.8 in April. The composite last stands at 58.0, a tad lower than the flash estimate of 58.1. It was at 58.9 in April. Separately, Australia's trade surplus missed forecasts but was made up for by the upward revision to the March surplus. The April surplus was A$8.03 bln rather than A$8.3 bln, while the March surplus was revised to A$5.79 bln from A$5.57 bln. Exports fell shy of the 7% increase the median forecast in Bloomberg's survey anticipated, rising only 3%, though the March decline was halved to 0.1%. Imports fell by 3% in April, and the March gain was revised to 5% from 4%.
Some observers had suggested that recent high-level meetings between US and Chinese officials were a prelude to a thaw that would lead to the resumption of formal bilateral talks and a meeting between Biden and Xi later this year. They saw confirmation of this de-escalation in Xi's seeming pushback against "wolf diplomacy" with his advocacy of a "trustworthy, loveable, and respectable image" approach to the world stage. However, it seems premature to reach this conclusion. First, it appears Xi is speaking to a public relations challenge, not an issue of substantive policy. China's local bullying continued in recent days, and Malaysia, for example, complained to China's ambassador about the violation of its airspace by Chinese fighter planes. Second, the newfound push by the Biden administration about the origins of the virus can only antagonize Beijing, and such efforts, according to reports, will take years to really determine, not the 90-day deadline. Third, Biden is expected to shortly announce a new approach to banning investment in Chinese companies with military ties or involved with surveillance. Trump's effort was challenged in US courts, and Biden will overcome these and put them under the Treasury Department. Biden is not giving up the chits Trump created but will put them on a more solid legal footing and strengthen them....
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