May 30, 2018, by Lorcan Roche Kelly
European markets are not seeing a repeat of yesterday’s huge selloff in Italian debt, with the country’s bonds staging something of a relief rally in early trading, and demand at today’s auction of 10-year notes hitting the highest since December. The moves are certainly not driven by an outbreak of political stability in the Mediterranean nation, which appears headed for a fresh election. Californian bond giant Western Asset Management Co. said that now is the time to take profits on Italian shorts, suggesting the selloff went too far, too quickly.
Days before the next round of trade negotiations are due to begin, President Donald Trump has increased the pressure on China by saying he is moving ahead with plans to impose tariffs on $50 billion of Chinese imports, with the White House set to publish the final list of imported goods on June 15. Elsewhere, Prime Minister Shinzo Abe hit back at plans to introduce levies on Japanese car exports to the U.S. saying, “from a security perspective, it’s very difficult to understand why this would be imposed on Japan, a military ally.” Canadian Prime Minister Justin Trudeau said that a win-win deal was still possible on Nafta, but added he would rather see the trade deal die altogether than accept certain hardline demands. One country that seems to be welcoming Trump’s advances is North Korea, with all signs pointing to the summit between the two nations being back on for June 12.
A barrel of West Texas Intermediate for July delivery was trading at $66.96 at 5:40 a.m. Eastern Time as crude investors try to balance the risks posed by renewed global trade tensions with concerns that OPEC and its allies might announce an easing of their production cuts. One feature of the oil market this year has been the widening spread between WTI and Brent crude as American shale production has increased pressure on the U.S. benchmark. Still, shale output is facing problems amid infrastructure bottlenecks, with pipeline shortages and storage issues hampering the sector’s ability to capitalize on global demand.
Overnight, the MSCI Asia Pacific Index lost 1.4 percent while Japan’s Topix index closed 1.5 percent lower, extending its losing streak to eight days. In Europe, equities were not seeing a repeat of yesterday’s major selloff, with the Stoxx 600 Index up 0.1 percent by 6:33 a.m., while Italy’s benchmark gauge rose 1.6 percent. S&P 500 futures pointed to a higher open, the 10-year Treasury yield was at 2.875 percent, and gold at $1,297.49.
At 8:30 a.m., the second reading for Q1 GDP is published, with wholesale inventories for April due at the same time. German inflation numbers for May are published at 8:00 a.m., with economists expecting a jump in the year-on-year headline number to 1.9 percent. At 10:00 a.m., Canada’s central bank announces its latest rate decision where it is expected to keep policy unchanged. The Fed’s beige book is due at 2:00 p.m., with the central bank holding an open board meeting on the Volcker rule at 3:00 p.m.