Macro-News round-up
#MarketNews

🇯🇵 Japan: Today is a public holiday in Japan, perhaps that is why, with fewer traders working and less liquidity available in the markets, the yen has opened the week with an impressive move. The value of the currency increased by more than 1% after falling by about the same amount to 160.17 per dollar earlier. If you recall, the level we have indicated in previous reports over the past few months, USDJPY 160, has been fleetingly touched. Our predictions seem to have been millimetre accurate, with a margin of error of 0.16 yen to be exact. The sharp fluctuations highlight rumours that before to this week’s Federal Reserve meeting, investors have been increasing their bearish wagers on the yen.

🇺🇸 US: This week we will have the Fed’s rate decision. Since the December statements, in which Powell speculated on rate cuts in 2024 without macroeconomic data to back it up, we have been strongly sceptical that this would happen, and time seems to have proven us right. The topic of discussion has shifted from the number of US interest rate reductions expected this year to whether any will occur at all.

🔢 Over the past few weeks, we have pointed to the movement in US Treasury yields as the main evidence indicating that the rate cut was moving in the opposite direction. Bond yields have risen sharply in the last 3 weeks, returning to levels prior to Powell’s December rate cut announcement. The 2-year bond is on the verge of exceeding a 5% return.

🇺🇸 US Bonds: Longer-term bond yields would climb in a bear steepening because to pressure on longer-term rates from rising U.S. debt, and sticky inflation and an unexpectedly strong economy would prevent the Fed from reducing rates, which would allow the curve to normalise. The Fed’s rate cut announcements, to which short-term bonds would be more sensitive, would help to smooth the yield curve, normalizing it again and giving it a positive slope. However, the doubts in this regard, together with the increase in the value of some safe-haven assets such as gold, which detract from the demand for US bonds, would hinder the normalization of the yield curve, which continues to have a negative slope, with the 2-year bond trading at almost 5% while the 10-year bond is trading at 4.6%.

🛢️ Commodities: The United States assured yesterday, Sunday, that Israel would be willing to listen to its proposals for a ceasefire in Gaza. Antony Blinken, begins a tour of the Middle East to achieve the necessary conditions. These moves seem to have calmed the markets, especially the most sensitive one, the crude oil market. The Brent barrel, which reached almost $92 last week, has fallen back to support zones and is currently at $87 per barrel. Similarly, gold has also calmed down, falling from over $2400 per ounce last week to the current $2330.

🚗 Tesla: In an attempt to get China to approve driver-assistance software that would stop Tesla’s revenue slump, Musk travelled there unexpectedly on Sunday. He met Premier Li Qiang, who helped Musk’s company establish what is currently its most successful plant worldwide in his capacity as Shanghai’s Chinese Communist Party secretary. By cooperating with Baidu for mapping and navigation capabilities, the US manufacturer is poised to overcome a significant obstacle in order to launch its sophisticated assisted driving features in China.

🇨🇳 China: China’s official manufacturing PMI for April is expected to show slower growth compared to the previous month, according to a Reuters poll. The median prediction of 33 economists in the survey provided by Reuters indicates that the official purchasing managers’ index (PMI) probably decreased to 50.3 in April from 50.8 in March. Although policymakers were somewhat relieved that the second-biggest economy in the world expanded more quickly than anticipated in the first quarter, March data revealed that domestic demand is still fragile. Investors are anticipating the April Politburo meeting, which is anticipated to focus on economic matters and take place by the end of April, and fresh stimulus announcements from the Chinese government to bolster the economy.

🌎 Geopolitics: Plans to permanently abandon the US dollar for trade settlements have been declared by the Maldives. The governor of the central bank of the island country said that payments will henceforth be made in Chinese Yuan and other currencies. As a result, the Maldives is among the first nations to formally stop trading in dollars. It follows Beijing’s pledge to offer financial assistance during the pandemic’s fall. As its economic might develop, China has been pushing for the yuan to be used more internationally. Approximately 60% of the world’s foreign exchange reserves are presently held in US dollars. If tensions with the US don’t subside, other nations could take the Maldives’ example. Given the difficulties facing the dollar, geopolitics is becoming more important when choosing a currency. China has achieved a symbolic win with this step in its attempts to promote the yuan internationally.

🇷🇺 Russia: Following the seizure of more than 300 billion Russian assets by the United States and Europe after the start of the Ukrainian war, Russia announced on Friday what it would take reciprocal measures. According to Russian media, Gazprom, the national oil firm of Russia, would oversee all shares in BSH Hausgerate (Bosch and Siemens) and Ariston. Paradoxically, the EU claims that this action creates an environment of “arbitrariness and hostility towards foreign investors,” and that it is evidence of Russia’s “disregard for international law and norms.” According to Russian media sources, all the shares in BSH Hausgeräte (Bosch and Siemens) and Ariston will be controlled by Gazprom, the well-known national oil company of Russia. The European Union (EU) is concerned about this trend and claims that it encourages a climate of “arbitrariness and hostility towards foreign investors.” In addition, the EU claims that Russia’s actions demonstrate its “disregard for international law and norms.” These statements are exactly what Russia claimed when its assets were expropriated two years ago.

Calendar for the Week:

Monday:

• Sweeden: GDP.
• Spain: Inflation rate.
• Italy: Bond Auction.
• Germany: Iflation Rate.

Tuesday:

• China: Caixin Manufacturing Index.
• French: GDP.
• Germany: Retail Sales, Unemployment rate, GDP.
• Spain: GDP.
• Euro Zone: Inflation Rate.

Wednesday:

• Labor Day Holiday.
• UK: Manufacturing PMI.
• US: ADP NF Change, PMI, ISM, Crude oil inventories, FOMC statement, Interest Rate Decision, Press Conference.

Thursday:

• Europe: PMI for European countries.
• US: Initial Jobless Claims, Trade Balance.