ABX weekly 29/05/2019

Market Update  

 

The White House is seeking to cast its tariff net wider, potentially eyeing countries deemed to have undervalued currencies. The latest proposal would let U.S. companies seek anti-subsidy tariffs on imports from nations the Treasury Department finds to be engaged in competitive devaluation of their currencies. While no nation currently meets that criteria, the focus on “undervalued” exchange rates may signal a push in the wider trade war. On that note, President Donald Trump said that China’s Huawei Technologies Co., which was recently blacklisted on security concerns, could become part of a trade deal between the two countries.  

Oil had its worst day of the during the week, dropping almost 6% as the commodity got caught in the stampede out of risky assets. Tensions in the Middle East had helped to shelter crude from some of the worst fears on global trade as investors balanced demand concerns against a possible supply disruption. Clearly that balance broke amid the renewed global growth concerns.  

Government bond yields across the world are tumbling again, with the U.S. 10-year trading at 2.23% this morning as global trade tensions mount. The gap between the three-month and 10-year American yield fell as low as minus 12 basis points, the most since negative 2007. Benchmark yields in Australia and New Zealand dropped to all-time lows, Japan’s fell close to -0.1%, the lowest in three years, while German bund yields are close to the rock-bottom.  While things look grim the existing bond holders have done very well to protect themselves to such market volatility. 

All 25 analysts surveyed by Bloomberg see policy makers at the Bank of Canada holding rates unchanged when the monetary policy decision is announced at 10 a.m. in Ottawa. The moves in the bond market may see more attention paid to today’s Treasury auctions in which two- and seven-year notes are being sold. Exxon Mobil Corp. and Chevron Corp. both hold shareholder meetings today where the companies face votes on climate-change policies. 

 

European Desk 

 

British Prime Minister Theresa May announced that she will step down as Conservative Party leader on June 7, while staying on as PM until the leadership contest is concluded. Initial market reaction to the not-unexpected move has been relatively muted, with the pound fluctuating around $1.27. The ring-a-roll on Brexit negotiation  has resurfaced as expected from a couple of weeks of slumber.