Originally published at The Boock Report
The response in China and elsewhere in Asia to the Mnuchin time out in the 'trade war' was actually pretty mixed. The H share index closed unchanged while the A share index in Shanghai was higher by .6% as was the Hang Seng. Australia, the China proxy, was flat on the day and the Nikkei saw no change too. I remain hopeful that a deal satisfactory to both sides will come of this. I also repeat that interest rates are the most important thing for stocks now and that should be #1 on the priority list in terms of focus.
The other important news today is that China is discussing the end of all restrictions on having kids "according to people familiar with the matter" according to BN. They reported that "The State Council, China's cabinet, has commissioned research on the repercussions of ending the country's roughly four decade old policy and intends to enact the change nationwide, said the people, who asked not to be named during government deliberations. The leadership wants to reduce the pace of aging in China's population and remove a source of international criticism, one of the people said." Buy baby food and diaper makers, short condoms.
Giuseppe Conte is the new PM of Italy of the 65th Italian government since WWII. I never heard of him. He's a law professor and not a politician. He'll be more of a figurehead dealing with a populist agenda. That populist focus is what has markets up in arms. The French Finance Minister said yesterday, "If the new government takes the risk of not respecting its commitments on debt, the deficit and the cleanup of banks, the financial stability of the entire euro zone will be threatened." What he didn't mention is that this possibility would coincide with the end of ECB QE and NIRP next year.
The sharp selloff in Italian debt continues today. The 2 yr yield is up another 7.5 bps to +.17%, the highest since August 2015 and has basically given back nearly 3 years of declines in a week. A week ago Friday it was at -.28%. Did someone once say 'risk happens fast'? The 10 yr yield is up by 5 bps to 2.28%, up 40 bps in 6 trading days and just 10 bps from the most since October 2014.
2-yr Italian Yield
For the 2nd month in a row, the Japanese trade data missed expectations but did improve in April from the pace of March. Exports were up by 7.8% y/o/y vs the estimate of up 8.7%. The gains were led by semi's and autos. Imports grew by 5.9% vs the forecast of up 9.8%. I wish we can separate out any change of behavior with the trade tariff proposals which the Japanese have not been exempt of. They are now threatening their own retaliation. This data follows the contraction in the Japanese economy in Q1.
The US dollar strength continues but so does the rise in commodity prices, thus for now breaking that close inverse relationship and I believe highlighting the underlying bid to commodities generally. We keep focusing on oil specifically but food prices all of a sudden are at 9 month highs. Corn today is near a 2 yr high. Copper is up 1.3% on the China/US Mnuchin comment as are soybeans too. Aluminum is around unchanged.
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