Relief in EGB spreads, and the outperformance of periphery betas helped European stock lift overnight. And despite recession risk filling the headlines, US stock futures are currently up in no small part thanks to lower US yields and falling volatility, but mainly on the hope that the US will scrap China tariffs even as economic growth concerns continued to limit appetite for riskier assets.
Much of the commentary by US officials in recent weeks concerning tariffs has centred around rising prices of final consumer goods. And while there is some uncertainty in case there are no headlines- does it mean tariffs roll-off or continue? Given that inflation remains the White House public enemy number one, the street is leaning toward a gradual rollback of some China tariffs as it would reduce end costs to US consumers.
US Trade Representative is reviewing tariffs imposed in July-Aug 2018 (referred to as List 1 and 2), under section 301, as part of a mandatory four-year review. Phase One of this review is due to end on 5 July for List 1 and 22nd August for List 2.
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Oil markets remain tight, and supply uncertainty is high as Russia and several other OPEC+ producers experience disruptions linked to political and technical factors.
Although oil is trading supported on the day due to improved risk sentiment and the possible easing of US trade tariffs against China, Oil is still struggling to break out from its current recessionary malaise as the market pivots away from inflation to economic despair.
So, the glaringly obvious supply issues are taking a back seat to the growing laundry list of H2 consumer and industrial demand concerns that are influencing broader markets.
Korea’s headline CPI rose above expectations, signalling the highest inflation rate since 1998. The data should cement a 50bp rate hike at the 14 July meeting to 2.25%, with headline inflation likely remaining elevated over the summer on energy prices while core inflation is more broad-based.
With an unemployment rate of 3.9%, still a bit higher than the pre-Covid level and inflation of only 2.8%, BNM is under less pressure than other central banks to raise rates quickly. But the real policy rate is negative, and that could be excessively hurting the MYR in the central bank’s eyes as they try to counter the threat of feedback loop into inflation via a weaker currency, So we expect BNM to hike 25 bp to prevent a further weakening in the MYR.
Originally published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT