LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
Group of Seven finance chiefs have much to disagree about these days as smouldering tensions on trade and currencies form the backdrop to the their meeting in Canada on Tuesday.
I’ll get into this and all of the rest of the market news below. Plus, in my column today, I discuss why the market’s initial calm over the latest U.S. credit rating downgrade might be misleading.
Today’s Market Minute
* The leaders of Britain, Canada and France threatened “concrete actions” against Israel on Monday if it does not stop a renewed military offensive in Gaza and lift aid restrictions, piling further pressure on Prime Minister Benjamin Netanyahu.
* Donald Trump said after his call on Monday with President Vladimir Putin that Russia and Ukraine will immediately start negotiations for a ceasefire, but the Kremlin said the process would take time and the U.S. president indicated he was not ready to join Europe with fresh sanctions to pressure Moscow.
* China cut benchmark lending rates for the first time since October on Tuesday, while major state banks lowered deposit rates as authorities work to ease monetary policy to help buffer the economy from the impact of the Sino-U.S. trade war.
* The prospect of U.S. import tariffs on copper has been a bonanza for physical metal traders, but the resulting price turbulence has been a big headache for fund managers. Read the latest piece from Reuters’ columnist Andy Home.
* The current problem with Chinese economic data is that there is something for everybody. Bears point to slowing factory output in April, weak property prices and investment, soft retail sales and lacklustre growth in electricity generation. But bulls highlight resilient iron ore imports, recovering crude oil arrivals, surging installations of renewable energy and strong electric vehicle production. Find out how to make sense of it all in Clyde Russell’s latest column.
An awkward G7
Monday’s wobble in U.S. stocks and bonds on the latest U.S. sovereign credit rating cut seemed to calm quickly, but the dollar remained under pressure and bond markets across the G4 were on edge. Debt worries are beginning to rankle more broadly.
Japanese long-dated government bonds were the latest victims overnight after a poor auction of 20-year bonds saw 30-year and 40-year JGB yields soar to new record highs above 3% as the 20-year yield hit its highest since 2000.
The auction may be an ominous portent for an equivalent U.S. debt sale on Tuesday, where $16 billion of 20-year Treasuries come under the hammer.
But market attention may now shift to potential currency discussions at this week’s G7 meeting after weeks of speculation that Washington may push Japan and other Asian countries to stop capping their currencies as part of its bilateral trade negotiations.
Japan’s Finance Minister Katsunobu Kato said on Tuesday that he expects that any discussions about exchange rates with U.S. Treasury Secretary Scott Bessent will be based on their shared view that excessive currency volatility is undesirable.
After a previous meeting with Bessent in Washington last month, Kato said the two agreed to continue “constructive” dialogue on currency policy, but did not discuss setting currency targets or a framework to control yen moves.
U.S. officials appear keen to keep the trade re-set on the overall agenda and to continue pressuring China.
“The Secretary will push the G7 to continue to focus on rebalancing the global economy and addressing unfair economic policies that contribute to imbalances,” the spokesperson said. “The G7 must work together to protect our workers and firms from China’s unfair practices.”
With JGB wobbles and the G7 meeting as a backdrop, dollar/yen slipped again on Tuesday. The dollar index nudged down to its lowest in almost 2 weeks.
But outside the G7, China’s yuan bucked the trend and weakened as the People’s Bank of China cut its key lending rates for the first time in seven months, in part to help buffer the economy from the impact of the Sino-U.S. trade war.
That helped Chinese stocks outperform an otherwise flat-to-postive day for stocks in Asia and Europe, although Wall Street stock futures were in the red again despite Monday’s late recovery by the S&P 500.
Also bucking the trend was the Australian dollar, which edged lower after the Reserve Bank of Australia cut benchmark interest rates by 25 basis points and left the door open to further easing in the months ahead.
Later on Tuesday, Wall Street will keep a close eye on Home Depot’s quarterly update to better assess how big retailers are coping with the tariff shock.
Another stream of Federal Reserve speakers are also on the line up today. The message from Monday’s heavy dose of Fedspeak was that the central bank is on hold for the foreseeable future.
Fed futures pricing now expects no rate cut before September and just two cuts over the remainder of the year thereafter.
Be sure to check out today’s column, where I discuss why the market’s initial calm over the latest U.S. credit downgrade may be deceptive, as credit default swaps reveal deep investor anxieties about America’s fiscal health.
Chart of the day
The United States isn’t the only country whose sovereign credit rating is under pressure. Long-dated G4 government borrowing rates over 30-years are climbing. Japan was the latest in the firing line on Tuesday after a poor auction of 20-year bonds. Anxiety is building up about the country’s debt-to-GDP ratio, which is already an eye-watering 263%. The Bank of Japan seeks to lift interest rates to handle ‘normalizing’ inflation, as it also looks to run down its massive holdings of government debt. Japan’s 30-year and 40-year government bond yields jumped 17 and 15 basis points, respectively, to hit record highs above 3%. The 30-year JGB yield is now back above those in Germany.
Today’s events to watch
* Canada April consumer prices (8:30 AM EDT)
* G7 finance ministers and central bankers meet in Banff in Alberta, Canada
* Federal Reserve Board Governor Adriana Kugler, Boston Fed President Susan Collins, St Louis Fed President Alberto Musalem, Atlanta President Raphael Bostic, Richmond Fed chief Thomas Barkin, San Francisco Fed chief Mary Daly and Cleveland Fed boss Beth Hammack all speak
* U.S. corporate earnings: Home Depot, Palo Alto Networks, Keysight
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Mike Dolan; Editing by Anna Szymanski)
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