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Today’s agenda has no data releases and instead focuses on anticipated positive US-China trade talks in London.
Today has no scheduled data releases, but the focus is on US-China trade talks happening in London. Comments from Friday suggested that there might be optimism about these discussions, hinting that reductions in tariffs could soon be announced to encourage further negotiations.
If any announcements are made, they could affect the markets, so it’s important to stay updated. Any news could lead to market shifts.
Week Ahead: Trade Tensions Take Centre Stage
Markets opened the week with cautious optimism following a strong finish the previous Friday. Investors were still digesting an encouraging US employment report, which revealed 139,000 jobs were added in May, comfortably exceeding the forecast of 125,000.
That headline figure helped lift equities to fresh highs, with the S&P 500 closing above the 6,000 mark. However, deeper inspection revealed a softer backdrop: revisions to past data resulted in a net decrease of 95,000 jobs over the previous two months, suggesting that while job creation continues, the pace may be moderating.
Wage data added complexity to the picture. Average hourly earnings rose by 0.4% on the month and 3.9% year-on-year, indicating that workers’ purchasing power remains ahead of inflation for the time being. This supports consumer spending and points to ongoing resilience in retail sectors as summer approaches. Still, questions remain over whether this can be sustained if uncertainty over trade policy begins to dent business sentiment.
Inflation, for now, remains contained. Headline CPI holds steady at 2.3% year-on-year, the lowest reading since early 2021, while core inflation has eased to 2.8%. These figures are within touching distance of the Federal Reserve’s 2% target, suggesting that pricing pressures are manageable for now. Crucially, neither wage gains nor tariffs have yet fuelled a fresh inflationary spike, though that balance may yet be tested.
Fed Remains Cautious
One reason inflation may appear subdued is the way businesses have front-loaded imports ahead of anticipated tariff increases. This strategy has bolstered inventories and helped cushion price pressures, but it could simply be postponing the real inflationary impact. Markets are alert to this possibility.
The Federal Reserve has so far resisted political pressure to act. Despite President Trump’s calls for a sharp 100 basis point cut, the Fed is standing pat. With unemployment low and inflation moderate, there is little case for immediate policy easing.
CME FedWatch data shows no chance of a rate cut at the upcoming June 17 – 18 FOMC meeting. Markets instead anticipate the first cut in September, potentially followed by a second before year-end, but only if the data warrants it.
This deliberate stance reflects the balancing act facing the Fed. Move too early and credibility is at risk; act too late and economic headwinds, such as tariffs, may bite harder. For now, the Fed remains guided by macroeconomic fundamentals rather than political demands.
Trade Tensions Take the Spotlight
Trade policy continues to loom large as the most significant potential catalyst for volatility. President Trump’s announcement that US – China trade discussions will resume in London brought brief relief to markets. Equities rallied on hopes for diplomatic progress, though companies remain hesitant. Many major firms have delayed investment and hiring decisions as they await clarity on tariff measures, a caution that may soon appear in earnings outlooks and capital expenditure data.
Markets find themselves in a delicate balance. Positive employment figures and subdued inflation offer support, but any misstep in trade negotiations could quickly undermine that stability. On 6 June, both the Dow and Nasdaq gained more than 1%, fuelled by the strong jobs print. Yet the rally could quickly reverse if talks stall or if inflation surprises to the upside once stockpiled goods give way to tariff-inflated costs.
Bond markets reflect this tension. Yields have ticked higher following the employment surprise, but softer data could see them retrace. The interplay between expectations for Fed policy and trade risks will continue to shape fixed income flows.
Prudence is prevailing. Traders are approaching mid-2025 with a mix of restraint and readiness. Should trade talks yield progress and inflation stay controlled, the argument for a rate cut later this year remains valid. However, if discussions falter and inventories shrink, consumers may begin to feel the pressure, forcing a repricing of risk across the board.
Market Movements This Week
In light of recent data and the Fed’s current stance, price action is being approached with a balanced perspective. While sentiment retains a cautiously positive tilt, several major markets are approaching key inflexion points.
The U.S. Dollar Index (USDX) climbed just above the 98.00 zone we’ve been monitoring. At this juncture, price appears poised to either consolidate near-term before pulling back, or continue higher into the 99.80–100.50 region. That next range becomes critical. Price action there will determine whether we’re shaping a broader bullish continuation pattern or setting up for a medium-term reversal. With the Fed holding steady and inflation in check, the dollar is trading more on positioning and global demand for safety than on yield dynamics alone.
EURUSD has slipped just below the 1.1520 zone, with 1.13564 now the key support. A break below may trigger broader downside, while a bounce could signal consolidation. We’re watching closely for structure confirmation at this level, maintaining a neutral stance until direction resolves.
GBPUSD sits just below 1.3600, with attention on 1.3460 and 1.3440 as key support levels. A break lower could trigger a broader correction, while a bounce may signal consolidation. With the dollar firm and risk sentiment cautious, we remain neutral-to-bearish until a clearer structure emerges at these thresholds.
USDJPY has been grinding higher, forming what could be a larger consolidation on the weekly scale. We are eyeing the 145.75 and 146.60 levels next. A rejection at either zone, with clear bearish structure, could offer a cleaner short-side play. However, the yen remains the weakest major currency structurally, and unless yields fall sharply, further upside is not off the table.
USDCHF also continues to lean into a consolidation phase. Our eyes are on the 0.8275 zone for signs of bearish exhaustion. If momentum stalls there and structure turns, we may see short setups develop, though the Swiss franc remains fundamentally driven by safe-haven flows, especially during tariff flare-ups.
AUDUSD and NZDUSD both printed new swing highs recently but have pulled back. For AUDUSD, 0.6460 becomes the pivot for any bullish setups. For NZDUSD, we’ll look to 0.5960. Both pairs are still largely tracking broader risk appetite and commodity sentiment. Watch copper and oil as secondary indicators.
USDCAD remains in a broader up-channel structure. If price consolidates into the 1.3750–1.3780 zone and fails to break higher, we will consider bearish opportunities. Crude oil stability could also cap further CAD weakness.
Speaking of oil, USOIL has finally begun to lift, but we remain cautious. The current move may be part of a larger consolidation. The 66.10 level is key. If price rejects there, we may see another corrective leg lower before more stable directional movement resumes. The market remains highly sensitive to geopolitical supply disruptions and trade-related demand forecasts.
Gold has been less convincing. Price failed to hold higher levels and has now revisited 3310. We anticipate a consolidation phase, with potential bearish setups at 3340. On a downward move, we are watching 3295 and 3265 for bullish price action support. Gold’s behaviour continues to reflect a lack of fear. There is no flight to safety just yet.
The S&P 500, on the other hand, continues its upward momentum. As we move higher, the 6100 level becomes the next key area. Reaction there will determine if the breakout holds or stalls. We approach this zone with caution given stretched sentiment and headline-driven volatility.
Bitcoin tested the 99,600 area and may now consolidate before attempting a move toward 107,550. Crypto markets remain highly reactive to risk appetite, regulatory headlines, and liquidity conditions. For now, structure remains bullish, but stretched.
Natural gas (Nat Gas) is showing upward momentum, but we expect resistance at 3.60. A clean bearish pattern at that level would mark a possible swing short opportunity.
As always, we monitor price zones for confirmation. Structure must align before entry. With macro sentiment holding firm but risks rising, it’s the reaction, not the forecast, that defines the trade.
Key Events This Week
Attention turns sharply to the US CPI report on Wednesday, June 11. Forecasts point to a year-on-year headline inflation rate of 2.5%, up from the prior 2.3%. A hotter-than-expected print could reignite concerns that the recent cooling in inflation may be stalling. That would likely push back expectations for a September rate cut and may firm the US dollar while weighing on risk assets. Conversely, a softer number would reinforce the recent disinflation narrative, potentially boosting equities and high-beta currencies.
On Thursday, June 12, the macro spotlight shifts to the UK and the US simultaneously. The UK GDP month-on-month figure is projected at -0.1%, down from the previous 0.2%. A downside print may weigh further on sterling, particularly if paired with risk aversion or dollar strength. Meanwhile, the US PPI is forecast at 0.2%, rebounding from last month’s -0.5%. This release will be closely watched for early signs of producer-level cost pressures feeding into consumer prices, especially in light of tariff implications.
Friday, June 13, rounds out the week with the University of Michigan Consumer Sentiment reading, forecast at 52.5 versus 52.2 previously. Though a secondary-tier release, sentiment data will offer insight into whether higher wage growth is translating into consumer confidence, or if political and trade concerns are beginning to weigh on expectations.
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In early European trading, Eurostoxx and German DAX futures fell, while UK FTSE futures gained slightly.
Eurostoxx futures dropped by 0.1% during early European trading as caution builds before US-China trade talks. German DAX futures also fell by 0.1%, while UK FTSE futures saw a small rise of 0.1%.
These market changes follow last week’s gains, and there was positive sentiment on Wall Street last Friday. The focus is now on the US-China negotiations in London, but the timing for these talks is still unknown. Recently, China made a goodwill gesture, which many see as a positive sign before the discussions, though a compromise is still uncertain.
Traders are being careful ahead of the US negotiations with the Chinese delegation, leading to a subdued market tone. Futures are moving sideways, volatility is decreasing, and risk appetite is low. This contrasts with the more optimistic trading seen last Friday in the US.
We are noticing a slight pullback in continental indices after last week’s rally, which was driven by strong earnings and data suggesting resilient consumer demand and housing. The small decline in Eurostoxx and German contracts indicates that much of the recent optimism is already factored into the market. Without new catalysts, a retracement is expected.
Beijing’s goodwill gesture has been acknowledged, but the uncertainty around negotiations remains. With the talks moving to London, the lack of a clear agenda or timeline is causing many participants to hold back. Ignoring the talks entirely would be a mistake. Traders involved with cyclical stocks linked to industrial demand and export flows are keeping their positions light or hedged, waiting for more clarity from the discussions.
This sentiment is reflected in options data: implied volatility for shorter-term contracts is easing, indicating no strong expectations for sudden market shocks in the near term. For directional trading strategies, momentum is unlikely to last without macro developments beyond the current diplomatic situation.
In the UK, the small rise in futures can be attributed to some positive earnings surprises and relief from currency movements. A weaker pound has slightly helped multinational companies’ revenue prospects, even amid overall geopolitical caution. However, traders with positions sensitive to the pound should keep an eye on Bank of England comments, especially as inflation data is released.
Chancellor Scholz’s government hasn’t indicated any major policy changes that could significantly affect risk profiles. Recent economic surveys reveal a slow recovery in German manufacturing, leading some traders to reduce leverage or focus on spreads between sectors showing stronger earnings momentum, like tech and healthcare, compared to industrials.
From a derivatives perspective, the current market suggests a preference for lateral movement rather than sudden breakouts. This environment favors traders who rotate between delta-neutral structures and shorter gamma exposure across correlated indices. Sticking with liquid assets can help lower execution risks in the current market mood. It’s wise to be cautious but not overly paralyzed—this is a practical approach for now.
In May, Japan’s economy watchers index increased to 44.4, boosted by better household retail activity.
Japan’s economy watchers’ survey index for May was 44.4, an improvement from April’s 42.6. This slight increase reflects a better outlook among households and more retail activity.
However, business trends declined, affected by changes in the manufacturing sector. On a positive note, the outlook for employment improved, with the index rising to 44.8 from April’s 42.7.
Consumer Sentiment And Business Confidence
The data indicates a slight boost in consumer mood on the high street and some growth in household spending, yet businesses, especially in manufacturing, feel uncertain. The diffusion index, which shows the percentage of respondents seeing better conditions, rose as consumers became more active, likely due to warmer weather and promotions attracting more shoppers. Nonetheless, production sectors face challenges tied to supply chain issues and shifts in global demand. Factory orders and export sentiment are weaker than expected, possibly leading to lower capital spending and hesitance in hiring in the coming months. The increase in the outlook index suggests people feel more secure in their jobs or see a slight improvement in job opportunities. This is often a lagging indicator; it doesn’t always lead to increased consumer spending, but it could indicate less hesitation in household spending if the trend continues. For traders focusing on volatility, this information could influence expectations around domestic demand and impact the yen’s value as more data becomes available.Market Dynamics And Strategic Adjustments
We see opportunities for relative value plays since short-term consumer resilience might not align with medium-term business caution. If retail data continues to strengthen without a similar rise in industrial output, the gap between consumption-focused investments and industrial ones could grow. This divergence is particularly important during the low-summer months when minor news can cause significant market movements. As market participants, we should view these indices not as definitive signals but as pieces of a broader picture that includes monetary policy, inflation trends, and local dynamics. With the Bank of Japan maintaining a unique position compared to other central banks, a sustained gap between employment expectations and manufacturing caution could open opportunities for adjusted hedging in interest-sensitive structures. Instead of making strong positions based solely on current sentiment, the data suggest better results by shifting focus to consumption-heavy sectors using short-term instruments while staying cautious on industrials until clearer signs of recovery appear. Balancing this with volatility metrics, which continue to lag behind actual moves, might allow for lower-cost entries into convexity trades within regional equity options. Throughout this period, household-led improvements are likely to fade faster than corporate recoveries solidify. We could analyze this gap by comparing small-cap performance to exporters or looking at upcoming inflation forecasts. The key lies not in the headline figures, but in how consistently consumer spending outpaces business sentiment through early summer. Create your live VT Markets account and start trading now.Dividend Adjustment Notice – Jun 09 ,2025
Dear Client,
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact [email protected].
Ishiba says Japan is entering a period of rising interest rates following a long time of low rates.
Japan is entering a new era of rising interest rates, as Prime Minister Shigeru Ishiba has pointed out. The nation has had low rates for a long time, so many people are not used to seeing rates go up.
Ishiba noted that higher rates will raise the government’s costs for borrowing, which could affect public spending. He emphasized the need to maintain trust in Japan’s financial stability from both the public and the markets.
The Bank of Japan is struggling to raise rates, with market expectations only about 18 basis points for the end of the year. Many believe there won’t be any rate hikes until at least summer.
As Japan moves away from its long period of very low interest rates, there is a noticeable change in government messaging. Ishiba’s comments show that the government is getting people ready for the impacts of higher borrowing costs, both for individuals and the country. We see early signs of this in bond pricing, where expectations are low. Markets are cautious, predicting less than 20 basis points of increases by December. This small increase over a year shows doubts about the Bank’s ability to act decisively in the near future.
The Bank of Japan now faces a complicated situation. As rates rise, the already high costs of debt will increase even more. Ishiba’s comments reflect concerns about the need for tighter financial measures. Higher costs will either call for more revenue or less spending, or possibly both. This is not good news for government programs that are already stretched thin.
Last week, trading activity showed little change, indicating that market participants do not expect a shift towards a more aggressive policy right away. This could suggest a calm market that is too relaxed. However, if the gap between the Bank’s messages and future rates continues, any significant changes could be sharp and risky.
Traders should focus on short Japan Government Bond (JGB) futures and notice shifts in long-term swap curves. If there is any movement before summer, it might start with these instruments. Watch for how well fiscal leaders and BoJ officials communicate in the coming weeks. History tells us that when the government and the central bank seem out of sync, it often leads to market volatility.
The pace of change may matter less than how it is communicated. If terms like “normalisation” start appearing often in official statements, it could signal a larger shift. This kind of language often comes before significant changes in pricing.
Currently, stress indicators seem calm, almost sleepy. However, with options on short-term exposures still relatively cheap, there is growing interest in taking positions that expect a steeper path for rates than what is currently indicated. Markets tend to rely on recent history, and the memory of zero or negative rates is still strong.
We understand the current outlook—but we also know how quickly things can change due to unexpected policy decisions or external data. While timing remains uncertain, major shifts like these rarely happen in perfectly orderly steps.
Key EUR/USD FX option expiries at 1.1400 and 1.1425 may influence pricing on June 9.
On June 9, watch for FX option expiries, especially for EUR/USD at the 1.1400 and 1.1425 levels. These expiries could affect price stability during trading.
Traders are also keeping an eye on US-China trade talks, hoping for meaningful updates. The 200-hour moving average at 1.1377 could limit price drops in the market.
Sensitivity of the Current Price Region
The current price area for EUR/USD is sensitive due to technical indicators and expiry-related flows, especially around 1.1400 and 1.1425. These levels correspond with large FX option expiries, which may attract spot pricing and serve as a ceiling unless market momentum changes. This kind of behavior can keep prices more stable, especially as liquidity strengthens near expiry. The 200-hour moving average at 1.1377 adds another factor to consider. This level often attracts attention from traders. It now acts as support, offering a temporary floor unless significant news causes sharp movements. Markets tend to respect these indicators when other factors are not actively influencing prices. With Washington and Beijing resuming talks, what was once a background issue is now more influential. Traders seek clarity, and shifts in policy or rhetoric can quickly move prices away from technical levels. The anticipation surrounding these events increases the risk of optionality pricing, especially for short-term exposure.Impact on Derivatives Positioning
For those focused on short-term derivatives positioning, upcoming expiries are particularly important due to current volatility pricing. While there is no sign of imbalance in the spot market, open interest around 1.1400 suggests that hedging might increase as these levels are approached. Flows may become more directional, depending on how the market reacts to trade talk updates and overall risk sentiment. It’s essential to monitor open option interest daily, not just on expiry days, as gamma positioning could enhance the chance of prices staying within a narrow range. The market’s reaction to any movement off the 200-hour line will be significant. Strong rejections could lead to more speculative bets, while a breakout could trigger stop losses or lead to changes in volatility profiles. Be mindful that time decay will start to have a greater impact now, especially at the noted strikes. This pressure may change how the spot price interacts with those levels, particularly in thin market conditions or during pre-expiry times. Therefore, traders with EUR/USD exposure may benefit from considering delta-neutral strategies or hedging deltas more often in the coming sessions, based on their portfolio dynamics. This week, technicals and event risk are closely aligned. Most price energy is building within these narrow ranges. Any breakout beyond known levels should be approached cautiously, given the nearby soft support below and the significant open interest above. Create your live VT Markets account and start trading now.US firms push for lower tariffs on Vietnam to cut costs amid ongoing trade tensions with China
US companies are pushing for lower tariffs on Vietnam as a way to diversify from China. A letter from the American Chamber of Commerce in Hanoi highlights how important Vietnam has become for changing supply chains.
The letter explains that tariffs shouldn’t interfere with the goal of diversifying supply options in the Indo-Pacific. This call comes as import costs rise from new trade policies.
As costs climb, US firms are searching for affordable alternatives, with Vietnam standing out during ongoing US-China trade issues. However, Vietnam’s initial 46% tariffs could complicate efforts for US businesses wanting to avoid high fees.
The tariff reduction request shows worries about how effective a potential US-China trade deal could be. The effects of the current 90-day pause in trade talks remain unclear.
We’re seeing a change in attitudes towards trade, prompting companies to explore more practical options. Due to import taxes, the focus has shifted to countries that may help lower costs. Vietnam is gaining attention because of its growing manufacturing sector and ability to respond quickly. The chamber’s letter isn’t just a plea—it’s a sign that businesses are changing their strategies for future needs.
The main point is clear: high tariffs on Vietnam could create problems. They might hinder the very goals the US wants, like more diverse sourcing. As policymakers adjust their views, it’s evident that short-term tactics may not match the longer-term strategies businesses need.
The pause in negotiations is meant to provide breathing room, but it hasn’t led to clear results. Instead of offering relief, the delay keeps markets in limbo. There’s no real progress or rollback, which could keep price volatility high, especially in tariff-sensitive industries.
For market watchers, this week and next are crucial. It’s important to pay attention to tactical moves rather than larger trends. Price changes may react more to news or policy changes than to the fundamentals. Traders may see quick shifts based on statements from either Washington or Hanoi, especially for industries linked to the Asia-Pacific.
Instead of focusing on long-term trends, it’s better to keep an eye on shorter-term contracts, particularly in areas where costs and profits are closely tied. Sentiment could shift, leading to wider spreads. As seen in previous situations, reactions aren’t always uniform and won’t immediately balance out across industry indices. This makes choosing options and timing very important.
Holding onto longer positions might carry more risk than reward without clear information. Even a minor change in tariff wording could lead to significant adjustments in related sectors. We need to monitor trading volumes carefully, especially where opinions can shift quickly. Any remarks about trade could lead to rapid changes, though they may not be large, they could be sharp.
Another factor to consider is the 46% tariff threshold. Hedging against USD risk might become pricier as currency movements respond to government policies. This means that premiums could vary more than expected based on last month’s figures.
Pullbacks might occur unexpectedly if confidence wanes. It’s wiser to prepare for smaller corrections than to await clear upward or downward trends. We should stay adaptable and not linger on decisions that are still pending. There’s still too much uncertainty in public statements for long-term commitments to feel secure.
A few European countries have a bank holiday, but trading continues on Xetra and Euronext. The dollar is slightly weaker, and US-China trade discussions in London are a key event.
Germany, France, and Switzerland will observe bank holidays for Whit Monday. However, both the Xetra and Euronext exchanges will stay open, so trading will proceed as planned in the second week of June.
The dollar is slightly weakening, and investors are feeling more cautious. Right now, the focus is on the US-China trade talks taking place in London, which is seen as a key event early in the week.
Impact On European Markets
Even though trading venues throughout Europe are open, Monday’s reduced staffing and lower trading volumes might create a false sense of calm in the market. With some areas observing Whit Monday, less activity could lead to price changes that are more automatic rather than driven by market fundamentals. This may create opportunities for mispricing, especially for assets sensitive to short-term liquidity. Generally, in these conditions, institutional trading impacts prices more than new information coming in. Meanwhile, the support for the dollar is easing. The recent dip in the dollar seems to be tied to lower positioning and declining inflation expectations. Treasury yields have slightly decreased, prompting currency traders to reduce risk, particularly in leveraged strategies. The options market is showing a slight rise in implied volatility for major currency pairs, indicating that concerns about central bank decisions are still prevalent. In a broader sense, the meetings between trade advisers from the US and China are getting more attention. With London hosting this round, expectations favor gradual progress rather than major breakthroughs. Any discussions about subsidies, intellectual property, or export controls will be analyzed closely afterward. Federal Reserve Chair Jerome Powell and his colleagues have maintained their stance. Rate cuts are not on the table for now, even as slowing manufacturing data and fluctuating consumer sentiment raise questions in the bond markets. We’ve seen the short end of the yield curve react nervously, swinging between dovish comments and hard data that fails to support cuts. However, the risk of an inverted yield curve has lessened slightly, at least until June’s reports provide more clarity.Outlook For Interest Rate Derivatives
We’ve observed a rise in volatility for shorter-dated US interest rate derivatives, which isn’t surprising given their sensitivity to quick policy changes. As trade talks proceed, any remarks indicating disagreement could shift rate expectations again. We expect two-year futures to react the most to these changes. Looking towards Europe, the flash PMI data from the eurozone due later this week could impact the stability of bund futures. Economists expect a slight decline in services but some resilience in construction sector surveys. Forward rate agreements are already reflecting a less aggressive approach from the European Central Bank (ECB), and any changes in the data will either confirm or challenge these expectations. Traders involved in EUR swaps should re-evaluate their positions as these data releases approach. In our view, the next sessions won’t focus on following trends but rather on understanding the subtleties of scheduled and unscheduled news. Machines and algorithms may react first, but it’s the discretionary trades that ultimately settle the market during London hours. We’re particularly alert to automated triggers at key levels in dollar-yen and ten-year Treasury futures, which can amplify movements that would otherwise be minimal. More broadly, the short-term differences between European and US yield curves reflect contrasting growth stories. If the German 10-year bund stays below 2.5% and the US counterpart approaches 4.5%, the ongoing rate gap will likely increase demand for the dollar, regardless of geopolitical sentiments. However, this relies on the upcoming Non-Farm Payroll (NFP) report not causing significant disruption. Positioning data is showing a heavy long dollar exposure, which could result in a sharp reversal if trade discussions succeed and the Federal Reserve turns dovish. Until these events happen, many institutions seem to prefer staying long on the dollar, using options to hedge against potential downside risks. This indicates clear market sentiment. Trading volumes for interest rate derivatives have increased ahead of the event risk, particularly in three-month eurodollar contracts. Price movements suggest either a hawkish surprise or a breakdown in negotiations. We believe that the premium on shorter-dated puts compared to calls indicates more concern about downside risks rather than strong directional beliefs. As liquidity improves later in the week, especially after Wednesday, we expect more accurate pricing to emerge. Until then, traders should be ready for potential volatility in low-volume markets influenced by limited participation and speculative macro outlooks. Create your live VT Markets account and start trading now.China faces deflation as trade surplus stays robust, while the US dollar weakens
In May, China’s Consumer Price Index (CPI) fell by 0.1% compared to a year ago, which is better than the expected decline of 0.2%. The trade balance reached $103.2 billion, surpassing predictions of $101.3 billion. Japan’s GDP for Q1 was revised to a decrease of 0.2%, better than the expected drop of 0.7%. In April, Japan’s current account recorded a surplus of 2258.0 billion yen, although it was below the expected 2563.9 billion yen. New Zealand’s manufacturing sales grew by 2.4% in Q1, a significant increase from the previous 1.1%.
Markets showed slight changes. Gold remained stable at $3309, while U.S. 10-year yields fell by 1.4 basis points to 4.49%. WTI crude oil declined by 8 cents to $64.49. The Japanese Yen led the market, while the U.S. Dollar struggled.
Australia and parts of Europe were on holiday, but Asian data added some volatility to the start of the week. China continued to struggle with deflation, experiencing falling prices but still holding a strong trade surplus. There was optimism about a potential U.S.-China trade agreement before the G7 summit. Despite a weaker U.S. Dollar, stock markets in China and Japan saw gains.
These latest economic reports give a clearer view of Asia’s financial health. China’s headline inflation is still weakening, as indicated by the drop in the CPI. While the decline wasn’t as severe as expected, it shows ongoing pressure on local demand. Companies may be reluctant to raise prices, and consumers are cautious.
On a positive note, China’s trade numbers exceeded forecasts, suggesting either strong exports or reduced import demand. This highlights resilience in external sectors despite weaker consumer activity.
Japan’s economy slightly contracted in Q1, but not as much as previously feared. This adjustment indicates less internal economic drag. The current account surplus, though lower than projected, remains positive, suggesting a healthy balance between Japan’s foreign and domestic accounts.
New Zealand’s Q1 manufacturing output rose by 2.4%, more than doubling the previous growth. This could boost activity in the second quarter if input costs remain stable.
In global markets, the reaction has been limited, though some trends are apparent. Precious metals remained steady, U.S. interest rates dipped slightly, and oil prices fell. Investors seem to be waiting for a key event, perhaps statements from central banks or further information from Asia’s production sector.
Currency movements were more revealing. The Yen outshone other currencies, gaining strength as analysts noted stability in Japan’s economic data and anticipated less aggressive monetary easing. On the other hand, the U.S. Dollar weakened, likely due to falling bond yields and expectations that the Federal Reserve may take a cautious approach this summer.
With some regions observing public holidays, trading volumes were lower at the week’s start. However, even light trading showed signs of volatility, particularly in Asia. While there are positive signals regarding easing tensions between Washington and Beijing, substantial changes are unlikely without concrete policy measures.
We are closely monitoring trends in yields and shifts in regional growth data, as these will shape expectations for interest rates and influence market positioning. In the coming week, changes in commodity prices or new consumer data from Asia could spark interest in options that hedge against market shifts or exploit pricing errors.
In the short term, we should focus on the differences between present inflation and future indicators, as well as variations between old and revised data. These variations can recalibrate expectations, impacting pricing in derivative markets. Maintaining a steady approach to risk while being agile with timing will be crucial in this environment.
