Rise and shine everyone.

It’s been a quiet morning, as the markets focus on the upcoming US CPI data later this week on Wednesday, preceded by PPI data on Tuesday.

We also have Home Depot reporting on Tuesday and Walmart reporting on Thursday to kick of earnings from major retailers.

US Equity Futures continue to trade higher and markets don’t seem enormously concerned about the inflation coming up. Volatility has moved markedly lower. Yields are lower this morning, even after Japan saw yields spike and the US dollar is flat. Oil, copper and bitcoin continue to head higher, while gold pulls back.

Could China be finally doing the right thing?

Early morning news from China says: China will sell a total of 1 trillion Yuan ($138B) in ultra-long-term bonds to boost the economy starting this Friday. I wrote on Twitter this morning that this could be a game-changer in China. If you have been following our research on China, our concerns surround the secular growth there and the lack of fiscal support measures that we have been hoping for to prop up the economy. While this could put pressure on the Yuan, China may be finally realizing that measures need to be taken.

This news came after shocking data over the weekend showed Aggregate Financing (Total Social Financing) came in negative at -200B yuan. This is the first contraction since January 2002 which clearly shows the problem with the consumer and lack of consumption.

Meanwhile, China’s April CPI was slightly above expectations, however, PPI was negative for the 19th straight month.

Pressure on BoJ to hike

The recent movements in Japan's 10-year JGB (Japanese Government Bond) yield, which has risen to its highest level since November 1st at 0.935%, come amid a series of important announcements and remarks related to Japan's monetary policy. The increase follows a new round of bond buying announced by the Bank of Japan (BOJ), which could be a reaction to various pressures including those from political quarters.

BOJ Governor Ueda's recent change in tone regarding the weak yen may indeed be influenced by political pressure. This is further supported by comments from officials within Japan's ruling Liberal Democratic Party (LDP). For instance, LDP official Ochi emphasized that the BOJ should not delay the normalization of monetary policy due to risks, while another LDP member, Kato, remarked that it is natural for monetary policy to revert to a style featuring positive interest rates.

The weak yen has garnered attention from Prime Minister Kishida as well, who noted that the government is closely monitoring the yen's weakness and will cooperate with the BOJ.

Internationally, the situation is viewed as not just a Japanese issue but a regional concern affecting nearby economies such as Indonesia, Thailand, Malaysia, China, and Korea.

There seems to be increasing pressure on the Bank of Japan to hike rates again and move towards policy normalization. This could mean a strengthening in the Yen and pressure on the Nikkei 225. We’d be cautious here though in taking positions because the BoJ has often surprised us with discussions and no action. At this stage, I wouldn’t be taking positions in the Yen.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)