• The US dollar and US interest rates have come back firmer after falling in response to the jobs data. Although the nonfarm payrolls disappointed expectations, it was a solid report, confirming that the labor market is recovering.
• The G7 finance ministers agreed on a minimum corporate tax, which if enacted (G20/OECD), it will aid the domestic agenda of the EU and the Biden administration. The G7 summit is expected to confirm it this weekend.
• China’s May trade surplus grew to $45.5 bln from $42.9 bln in April. Exports slipped but at almost 28% year-over-year are not weak. The composition changed a little. Imports soared by over 50% as rising prices overwhelm the small increase in volumes. China’s currency reserves rose for the second consecutive month.
• German April factory orders disappointed, while the CDU saw its support rise in a state election.
• The US competitiveness bill which picks up some infrastructure spending (chips) is expected to pass the Senate tomorrow.
• AMLO and his coalition lost seats in the weekend legislative election. This will temper the changes he sought and the peso seems to like that. Peru’s president election run-off is still too close to call.
After falling to 1.55% after the US employment data, which, while mixing expectations, could hardly be considered weak, the US 10-year yield has come back firmer today (1.58%). This may be lending the greenback a better tone.
Equity markets are quiet. Most markets in the Asia Pacific region edged higher. Australia, Taiwan, and Hong Kong were notable exceptions. Europe’s Dow Jones Stoxx 600 made a marginal new record high but is consolidating before the US session. Futures on the major US indices are a little heavier.
European bond yields are slightly higher. Most seem to expect the ECB to affirm its current pace of bond buying at this week’s meeting. However, as we have noted, the euro, European interest rates, and the premia over German Bunds have risen since the ECB stepped up its purchases in mid-March. Doubts over the UK’s ability to fully open on June 21 may be favoring some profit-taking on sterling, which is the weakest of the majors, off about 0.2%.
Emerging market currencies are narrowly mixed. AMLO’s party and alliance lost seats in the lower chamber as a result of yesterday’s election, and the diluted mandate has seen the peso trade higher. It is competing with the Turkish lira for the best performing emerging market currency today.
Firm US rates and dollar are dragging gold lower after the yellow metal rebounded from around $1856 to $1896 on the back of the drop in US rates following the jobs report. The near-term risk extends toward $1876. July WTI tested the $70 a barrel level and paused. Other industrial commodities are trading with a modest downside bias.
Bannockburn Global Forex