๐Ÿ“ˆ Macro-News round-up

๐Ÿ‡จ๐Ÿ‡ณ This morning we received inflation and PPI data from China. Monthly inflation appears to be deflating, resulting in -0.1%. Meanwhile, annualized inflation rises 0.3% compared to the expected 0.4%. This could raise fears of the deflation we suspected in 2023. However, the PPI data is recovering, resulting in -1.4%, higher than expected and improving on the -2.5% of the previous period.

๐Ÿ‡ฌ๐Ÿ‡ง In the United Kingdom, GDP growth remains at 0% as expected. Industrial production contracts almost 1%, compared to an expected -0.1%. Manufacturing production contracts -1.4% and the trade balance presents a deficit higher than expected, reaching 19.61 billion.

๐Ÿ“ˆ These data, which are bad a priori, could benefit the London stock market. An unfavorable macroeconomic situation will put pressure on the Bank of England to implement the expected rate cuts that would encourage stock markets. In fact, surprisingly, the Pound has not weakened against the dollar, and the FTSE 100 has seen a slight rebound, possibly motivated by yesterday April’s average weekly earnings in the UK were higher than anticipated.

๐Ÿ‡ซ๐Ÿ‡ท The announcement of early elections made by Macron, the result of the poor electoral results of his government, has led to speculation about the possibility of even handing over the government to the opposition. The markets have taken note of this. The French 2-year bond has seen its premium increase by more than 20bp, more than 7% compared to last week.

๐Ÿ‡บ๐Ÿ‡ธ Today is the most important day of the week. In a few hours we will have the inflation data from the United States. and this afternoon the Federal Reserve’s rate decision. Inflation would still be 3.4% year over year even if the headline number were to increase by just 0.1% MoM. If a 0.3% MoM result is obtained, core inflation could fall little from 3.6% YoY to 3.5%.

๐Ÿ‡จ๐Ÿ‡ณ China: The Biden administration is thinking about putting additional limitations on China’s access to artificial intelligence chip technology, specifically aimed at new gear that is just now starting to hit the market.

๐Ÿ‡บ๐Ÿ‡ธ US is concerned that obtaining the most cutting-edge AI technology could provide Beijing with an advantage over its military, which is why Commerce Secretary Gina Raimondo has stated time and time again that the US will bolster these safeguards as necessary.

๐Ÿ“‰ Chinese equities had a difficult day. The CSI 300 plummeted 0.87%, while the Hang Seng fell more than 1%.

๐Ÿ Corporate: Apple’s shares surged on yesterday close to 7% after its WWDC event showcased a strong focus on AI, a strategy investors had been waiting for. This move positions Apple to capitalize on the growing AI boom, joining other tech giants in the race to integrate AI into their products and services.

๐Ÿ‡ฏ๐Ÿ‡ต Japan: Japan’s wholesale inflation rose 2.4% in May from a year earlier, exceeding forecasts and accelerating for a fourth straight month. Higher prices for utilities, petroleum, chemicals and nonferrous metals drove up corporate goods prices. The weak yen also contributed, pushing up import costs as the yen-based import price index rose 6.9%. We warned that this scenario was foreseeable, in previous reports, when we indicated that commodity indices were rising.

๐Ÿ“ˆ The data complicates the BOJ’s policy decision as cost-driven inflation may cool consumption and weaken demand-pull inflation. the BOJ will need to see wages rise to help consumption recover before further raising rates. Consumer inflation may remain elevated as energy price subsidies end in June and wholesale costs pass through. Governor Ueda has said the BOJ will hike rates if convinced inflation will stay near 2% as projected.

โš ๏ธ The USDJPY pair is accumulating in a dangerous resistance zone from 157.50 to 158, which would reflect the impotence or inaction of the Bank of Japan to normalize its currency, which is at the lowest levels against the dollar seen in years. 90.

๐Ÿ‡ฟ๐Ÿ‡ฆ Political uncertainty around the ANC election raises concerns about potential instability in South Africa if support drops below 50%. The USD/ZAR rate faces downward pressure from expected Fed rate cuts but challenges to the ZAR include domestic political issues and economic headwinds. Accusations that South Africa supplied weapons to Russia have dampened global investor sentiment towards the country. Higher South African inflation readings could weigh on the Rand, especially if the USD get weaker. Its current inflation level is 5.2%, below the average of the last 10 years. South Africa has been alternating quarters of weak growth with quarters of contraction for more than a year.Since June 2021, the ZAR has weakened by more than 49% against the dollar.

๐ŸŒŽ Geopolitics:

๐Ÿ‡ญ๐Ÿ‡บ NATO Secretary General Jens Stoltenberg visited Budapest after Hungary said it wanted to “redefine” its NATO membership due to opposition to supporting Ukraine militarily. After difficult talks, Hungary confirmed it will not block NATO military aid to Ukraine, in exchange for the right not to participate itself. Orbรกn said Hungary will not provide funds, personnel or territory for involvement in the war in any way. Hungary will stay in NATO while avoiding direct involvement in the conflict, according to the agreement.

๐Ÿ‡จ๐Ÿ‡ณ The EU will impose preliminary anti-subsidy tariffs of 17.4-38.1% on electric vehicles from China following an investigation. Chinese automakers SAIC, Geely and BYD will face the highest duties, while Western brands’ Chinese EVs will see 21%. China strongly condemned the move as protectionism and warned it may take necessary measures to defend companies. European carmakers also lobbied against the tariffs over risks of Chinese retaliation. The dispute highlights the challenges of balancing environmental and industrial policy goals with trade and geopolitical factors.

๐Ÿ‡ฎ๐Ÿ‡ฑ Israel war: An Israeli official said Hamas rejected hostage releases, changing “main and meaningful” parameters. Hamas said its “positive” response to Biden’s ceasefire plan opened a “wide pathway” to an agreement, but Israel remained sceptical.  Hamas reiterated demands including an end to hostilities, Israeli withdrawal from Gaza and prisoner releases. Biden’s proposal envisages a phased ceasefire, withdrawals and prisoner releases to end the eight-month war, however, both sides remain far apart on core issues despite international efforts for a resolution.