US and Europe may Announce Tariff Truce

Today’s Highlights

• •    The US dollar is mixed today as the US 10-year yield remains soft.
• •    China’s data is hard to interpret because year-over-year comparisons are distorted, but it generally missed expectations. The recovery appears intact and underscores the official recognition of China’s economy being “unbalanced and unstable.”
• •    The UK is pushing back against the US’s plan for a global minimum corporate tax. The Chancellor of the Exchequer is concerned that the rate may be too high and would rather have multinational companies pay more in taxes in the countries where they sell their goods and services.
• •    The EU will not increase tariffs against the US and will instead enter discussions with the US regarding excess capacity in the steel industry.

There are two general developments as the busy week gets underway.  First, despite accelerated price readings in the US (CPI, PPI, import prices, and University of Michigan survey), US rates are soft.

The 10-year yield is near 1.61% after rising to 1.70% after the CPI surprise last week. This, in turn, appears to be limiting the dollar’s ability to recover much. However, it is trading a bit firmer against the dollar-bloc currencies and the Antipodeans. Emerging market currencies are consolidating the pre-weekend losses, while the Turkish lira and Hungarian forint are modestly higher.

Second, equities are heavy. China’s data did not inspire, but Chinese equities led the mixed Asia Pacific session higher, along with Hong Kong and India. Japan, South Korea, and Taiwan equities fell. Both Singapore and Taiwan are tightening social restrictions, and although Singapore shares advanced, Taiwan’s nearly 3% decline adds to last week’s nearly 8.5% drop.

Europe’s Dow Jones Stoxx 600 slipped 0.5% last week and is struggling at slightly lower levels today. The S&P 500 rose 2.7% in the last two sessions, but the futures are trading with a slightly heavier bias now.

Even with the Colonial Pipeline re-opening, oil prices remain firm, and the July WTI contract is holding above $65. It has a three-week advance in tow. Lower rates and some suggest the sell-off in leading tokens in the crypto space is lifting gold prices above $1850 and the 200-day moving average for the first time since early February. 

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com