U.S. allies prepare for trade brawl, Italy’s not the only European political crisis, and euro-area inflation hits 1.9 percent. Here are some of the things people in markets are talking about today.
When President Donald Trump slapped 25 percent tariffs on imported steel and 10 percent on aluminum in March, he granted a reprieve to Mexico, Canada and the EU until June 1. With Nafta talks rapidly running out of time, it’s very unlikely an agreement will be reached ahead of tomorrow’s deadline. For U.S. allies in Europe, there is little chance of completely avoiding the new tariffs, with EU Trade Commissioner Cecilia Malmstrom saying “realistically” she’s not holding out for a full exemption. Discussions are likely to continue today as trade ministers meet at a World Trade Organization in Paris.
Italy’s not alone
Italian bonds are rallying this morning, with the two-year yield plunging to below 1 percent. The bond moves don’t mean that anything has been fixed in Rome, with both populist parties still seemingly at odds over their next move. While the Italian crisis rumbles on, there is a chance that Spain might see the end of Prime Minister Mariano Rajoy’s tenure before the weekend as a no-confidence motion tomorrow may just have enough votes to force him out. In a speech this morning, Rajoy mounted a defense of his tenure, while rumors circulate that he might resign ahead of the vote and call for new elections in the fall.
This morning’s euro-area inflation reading for May came in at 1.9 percent, well ahead of analyst expectations, and the highest reading in over a year. Core inflation, which strips out food and energy prices, also rose to 1.1 percent. The euro, which had rallied earlier in the session, held over $1.1700 following the release. In the U.S. today, the headline and core PCE deflator – the Federal Reserve’s preferred inflation measure – will be published at 8:30 a.m. Eastern Time, with expectations that the core print will slip to 1.8 percent, possibly casting doubts on the central bank’s outlook for rate increases.
Overnight, the MSCI Asia Pacific Index rose 0.8 percent, while Japan’s Topix index ended its longest losing streak since 2012, closing 0.7 percent higher as the global rout eased. In Europe, the Stoxx 600 Index was broadly unchanged at 5:45 a.m., with Italian banks the best performers following the selloff earlier in the week. S&P 500 futures were flat, the U.S. 10-year Treasury yield was at 2.866 percent and gold was slightly higher.
While investors will be concentrating on PCE data at 8:30 a.m., they will also keep an eye on initial jobless claims scheduled at the same time, the last report ahead of tomorrow’s payrolls numbers. Canadian first-quarter GDP is also due at 8:30 a.m. At 10:00 a.m., U.S. April pending home sales numbers come in, with the EIA U.S. crude inventory report at 11:00 a.m. On today’s monetary speakers agenda, Atlanta Fed President Raphael Bostic and Fed Governor Lael Brainard are set to make comments, with G-7 finance ministers and central bankers holding meetings in Whistler, British Columbia.
What we've been reading
This is what's caught our eye over the last 24 hours.
- Why Wall Street traders aren’t rejoicing (yet) over the Volcker Rule.
- Soros contention on global risk is “ridiculous”, Morgan Stanley’s Gorman says.
- Buffett proposed $3 billion Uber investment but deal crumbled.
- How the opium wars shaped China’s approach to Trump’s trade threats.
- The Italy panic might be bad news for the UK.
- What makes $1 billion a year and oils the global economy while rebuilding its reputation?
- Middle-sized black holes.
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