Macro-News Round-Up
#MarketNews
🇯🇵 Japan: Industrial production, released early this morning, contracted again, expected to contract by -0.1% and came in at -0.9%. Industrial production in the previous period came in at 4.4%.
🇯🇵 The BOJ decided to start tapering its bond purchases and announce details of its plan to reduce its balance sheet next month. However, it will continue buying bonds at the current pace of around 6 trillion yen per month for now. The lack of immediate details on tapering was seen as indicating the BOJ will be cautious in adjusting policy. The BOJ exited negative rates in March in a landmark shift but pressure remains to scale back its massive balance sheet. Its normalization comes as other major central banks cut rates, but Japan’s inflation outlook is clouded by weak demand. A weak yen also complicates the BOJ’s moves by inflating import costs and dampening consumption.
💹 Meanwhile, the USDJPY has returned to the levels reached in April, touching 158.25 in the last hours.
🇫🇷 French sovereign debt is being reassessed, with bonds now on par with those from Portugal and just slightly below Spain. Macron calling snap elections to block Le Pen rattled investors concerned about stretched finances and reforms. Based on Bloomberg, French debt is set to rise to 113.8% of GDP next year versus declines in Portugal to 91.5%, highlighting diverging trajectories. Spreads between French and Portuguese debt have compressed to the tightest since the crisis, with some French bonds now yielding more. Downgrades by S&P and Moody’s flagged deficits remaining above 3% of GDP through 2027 due to election uncertainty.
🇩🇪 Germany: Paradoxically, Germany, leader of the Eurozone, wants to avoid tariffs on Chinese vehicles announced by the European Union. Chancellor Scholz’s government has warned the tariffs could hurt global trade and talks up prospects of EU-China discussions. Economy Minister Habeck travels to China next week as part of efforts towards an “amicable” solution by early July. Germany’s auto industry had opposed the tariffs given almost a third of sales come from China. Germany says further trade barriers should be avoided and talks are needed to make trade fair. China has now applied for an anti-dumping probe into EU pork imports, signaling potential further escalation.
🇨🇳 China: China is likely to adopt targeted, limited retaliation against the EU due to risks of a more robust response sparking a broader trade war. Possible measures could include tariffs on agricultural goods like pork and cheese that would impact key EU exporters. Goods vital to China’s needs like machinery and chemicals will likely be spared from countermeasures. The impact of the EU’s tariffs may also be blunted as Chinese EV makers can still profit and are building European factories. However, analysts expect China will eventually impose countermeasures once tensions have eased. Avoiding an escalatory cycle will be important for supply chains and the global trade environment.
🇬🇧 UK: According to a recent opinion poll, the right-wing Reform UK has surpassed the Conservatives for the first time, and this suggests that Prime Minister Rishi Sunak would likely lose the election handily. This pattern is consistent with the growth of far-right movements throughout most of Europe, and if Reform UK takes the lead as the main opposition party, things might get unsettling.
💷 The fact that the pound is showing excessive calm ahead of the upcoming British elections could be a foreshadowing of surprises in the markets. Most analyses predict that the government will pivot from Conservative to Labour, with no trauma to the British economy. But what if they are wrong?
🇺🇸 US: The Fed’s monetary policy report will be released this afternoon. We will comment on it if we detect anything relevant and new.
🚗 Corporate: Tesla’s stock price increased 6% following tweets by CEO Elon Musk about strong shareholder support for upcoming resolutions. The resolutions include Musk’s $56 billion compensation package, which has faced criticism due to its large size and challenging performance targets. The compensation plan aims to retain Musk’s leadership while motivating him to deliver long-term value for shareholders. Another resolution involves relocating Tesla’s headquarters from California to Texas, a strategic shift that could impact operations.
📈 The 200 and 55 averages will make it difficult for the stock to break above the $200 level, which in itself is a major resistance. However, betting against Musk stocks can be a risky venture.
🌍 Geopolitics: In view of the Swiss summit for peace in Ukraine, from which one of the parties involved has been excluded. China, which considered a peace summit that did not involve both sides as unrealistic, launched its own proposal for a peace plan. China has been insisting to governments for its alternative 6-point peace plan and skipping the Ukraine peace summit in Lucerne this weekend. The number of registered participants at Lucerne is down from initial figures, though key US allies will attend. Ukraine accused China of helping Russia undermine the summit, while China denies this and says it wants peace conferences without bloc confrontation.
