US Treasuries Win Some Respite as Key 30-Year Auction Looms

Economic

Summary:

US Treasuries trimmed gains ahead of a crucial $22B 30-year bond auction, with investors wary amid deficit concerns and rising yields. Focus shifts to CPI data and US-China trade talks.

US Treasuries were trimming overnight gains, with modest weakness in longer dated debt as investors awaited a Thursday auction of 30-year securities that will offer a fresh test of demand for the beleaguered securities.

An early rally that mirrored moves in European bonds lost steam ahead of the Wall Street open for equity trading. Treasuries were clinging to gains on maturities out to the 10-year. That left US government bonds still nursing the bulk of sharp losses from Friday’s stronger-than-expected US jobs report that saw traders dial back Federal Reserve interest rate cut expectations.

A quieter day for economic data Monday is shifting attention to US and China trade talks in London, and events later this week, including consumer inflation on Wednesday and the debt sale the following day. While scheduled bond auctions are typically routine affairs, Thursday’s $22 billion offering will be particularly scrutinized given the recent volatility in long-dated global bonds. Yields have soared in recent weeks amid growing concern over major governments’ spiraling debt and deficits.

“The 30 year is a kind of tail risk type of rate,” said Jeffrey Klingelhofer, portfolio manager at Aristotle Pacific Capital LLC in Newport Beach. “Concerns over deficit spending” matter far more for the long end than, “the seven to 10 year and certainly the shorter part of the curve,” he said.

The US 30-year yield has been marching higher since early April, hitting a peak of 5.15% on May 22, the highest since 2023. It was up around two basis points at 4.99%, from a session low of 4.94% on Monday, while the 10-year yield hovered around 4.51%.

“This is going to be key and really set the tone into June as a whole,” said Lauren van Biljon, fixed income portfolio manager at Allspring Global Investments, on Bloomberg TV, about the 30-year Treasury auction. “We know how much anxiety there is around longer-term financing.”

Mike Riddell, a portfolio manager at Fidelity International, said he’s entered a steepener position, which profits from long-dated bonds underperforming shorter ones. Like PGIM Fixed Income, he said the forces driving ultra-long bonds have shifted away from monetary policy.

“It’s no longer about policy rates, it’s all about the fiscal story and demand supply dynamics,” Riddell said. It’s “really concerning” that there “doesn’t appear to be any change in policy on the back of these market moves,” he added.

The US will also hold auctions for three and 10-year notes on Tuesday and Wednesday, respectively. Bond traders must also navigate the May CPI report, with economists surveyed by Bloomberg forecasting the year-on-year rate ticking up from 2.3% to 2.5%.

“Signs of inflation pressure could knock risk sentiment, and it may even limit dollar upside, especially if it threatens the US’s 30-year Treasury auction on Thursday,” Kathleen Brooks, research director at XTB wrote in a note.

Source: Bloomberg

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Glendon

Political

Russia-Ukraine Conflict

Russia hit Ukraine overnight with its largest drone attack since the start of the war, causing some damage at a military airfield in the west of the country that was one of its main targets, the Ukrainian air force said on Monday.

It was the latest in Russian onslaughts since Ukraine destroyed a number of Russian bombers in drone attacks on air bases deep inside Russia earlier this month.

Ukraine's air defence units downed 460 out of 479 drones and 19 out of 20 missiles launched by the Russian forces, the air force said in a statement.

A military airfield close to Ukraine's western border was the key target, air force spokesperson Yuriy Ihnat said.

"The main strike was targeting... one of the operational air fields. There are some hits," Ihnat told Ukrainian TV, without elaborating on the damage.

The airfield is in the city of Dubno, about 60 km (40 miles) from Ukraine's border with Poland, Ukrainian regional authorities said.

Polish and allied aircraft were activated early on Monday to ensure the safety of Polish airspace, the Polish armed forces said.

Russia's Defence Ministry said the attack was another strike in response to Kyiv's attacks on Russian bases this month, adding that "all designated facilities" had been hit.

The more than three-year-old war in Ukraine has been escalating as the peace talks between Kyiv and Moscow have so far failed to yield any significant results.

The two sides remain deeply divided on how to end the war. Ukraine is pushing for an unconditional ceasefire as a first step, something Russia has repeatedly rejected.

Source: Reuters

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Adam

Economic

China–U.S. Trade War

China’s exports growth missed expectations in May, dragged down by a sharp decline in shipments to the U.S., with analysts saying effects of the Beijing-Washington trade truce will be visible in June data.

Chinese exports to the U.S. plunged 34.5% from a year ago, marking the sharpest drop since February 2020, according to Wind Information, when the Covid-19 pandemic disrupted trade. Imports from the U.S. dropped over 18%, and China’s trade surplus with America shrank by 41.55% year on year to $18 billion.

Overall exports rose 4.8% last month in U.S. dollar terms from a year earlier, customs data showed Monday, shy of Reuters’ poll estimates of a 5% jump.

Imports plunged 3.4% in May from a year earlier, a drastic drop compared to economists’ expectations of a 0.9% fall. Imports had been declining this year, largely owed to sluggish domestic demand.

That was largely offset by its shipment to the Southeast Asian bloc, which jumped nearly 15% from a year, and those to European Union countries and Africa, which rose 12% and over 33%, respectively.

China’s total trade surplus increased 25% from a year earlier to $103.2 billion in May.

Still, exports growth in May slowed significantly from an 8.1% surge in April when a jump in shipment to Southeast Asian countries offset a sharp drop in outbound goods to the U.S. Chinese shipment to the U.S. plunged over 21% in April, as prohibitive tariffs kicked in.

“The prohibitive tariffs were only lifted in mid-May, the damage was already done,” said Tianchen Xu, senior economist at Economist Intelligence Unit.

China’s exports of rare earths dropped 5.7% from a year ago to 5,865.6 tons, customs data showed, as Beijing tightened export controls of the critical minerals to gain leverage during its trade negotiation with the Trump administration.

Volumes of cars and ship exports jumped by 22% and around 5%, respectively, from a year ago, while exports of smartphones and home appliances fell around 10% and 6%, respectively.

China’s imports of soybeans surged 36.2% year on year to a record high of 13.92 million metric tons, according to Wind Information.

High-stakes trade talks

Xu expects U.S.-bound exports to see some recovery in June. “It will be the first full month for Chinese exporters to enjoy reduced U.S. tariffs,” Xu said, adding that rare earths and electric machinery shipments would rebound following Beijing’s move to ease supervision on these exports.

U.S. President Donald Trump’s prohibitive 145% tariffs on Chinese goods took effect in April, prompting Beijing to retaliate with triple-digit duties and other restrictive measures, such as export controls on critical minerals.

U.S. and China struck a preliminary deal in Geneva, Switzerland, last month that led both sides to drop a majority of tariffs. Washington’s levies on Chinese goods now stand at 51.1% while Beijing’s duties on American imports are at 32.6%, according to think tank Peterson Institute for International Economics.

Zichun Huang, China economist at Capital Economics, pointed to early signs of U.S. demand for Chinese goods picking up following the Geneva truce.

While noting that it took time for the recovering demand to feed through to actual shipments, Huang cautioned that the existing tariffs are unlikely to be reduced further, if not hiked again, and will lead to slower export growth by year-end.

Chinese Vice Premier and lead trade representative He Lifeng is expected to meet with the U.S. trade negotiation team led by Treasury Secretary Scott Bessent in London later in the day for renewed trade talks.

The second-round of meetings come after tensions flared up again between the two sides, as they accused each other of violating the Geneva trade agreement.

Washington had blamed Beijing for slow-walking its pledge to approve the export of additional critical minerals to the U.S., while China criticized the U.S. decision to impose new restrictions on Chinese student visas and additional export restrictions on chips.

China’s Ministry of Commerce said on Saturday that it would continue to review and approve applications for export of rare earths, citing growing demand for the minerals in robotics and new energy vehicle sectors.

Source: cnbc

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Adam

Stocks

China–U.S. Trade War

S&P 500 returns to 6000

Friday’s session was yet another positive one for US markets, following the latest jobs report.

The S&P 500's recovery from the April lows continues, as it touches 6000 for the first time since late February. This leaves it just 2.4% from the record highs seen in mid-February.

I’m sure that many investors around the world will be looking at stock indices like the S&P 500 and think why they didn’t take the chance to rush back into stocks at the lows of April. That’s the problem with investing, it’s always easier with hindsight.

It is hard to remember how it felt back in April, when the shock of tariffs was still being digested. Predictions of economic Armageddon abounded, providing plenty of scary economic commentary for those that lap up such things.

But that’s in the past. Where do we go from here? That, of course, is the tricky part. It’s easy to look back at a chart and pinpoint the best moments to buy and sell, but it’s an entirely different game when you’re sitting in the moment and wondering what to do now.

For the moment, the global economy isn’t showing many signs of weakness. Friday’s US jobs report indicated a healthy economy overall, and even the China trade data, which showed a slump in Chinese exports to the US, failed to have much impact.

Markets find themselves in an odd place. There may well be more data in coming weeks that shows tariffs have had an impact. But then since mid-April most of the tariffs have been paused. Will data then start to improve next month? Investors who took a bearish view on the basis of May data may find themselves caught out by improvement in June’s figures.

Can markets keep rallying?

It is not implausible to argue that there can be more upside for stock markets in the short-term, even after the huge rally from the April low.

Investors often forget that stocks go up AND down, not up OR down. We may see some further short-term gains, and then a pullback may develop. It is not a given that markets have to retest the April lows.

Admittedly, the S&P 500 is currently trading at 23 times earnings. But the price-to-earnings (PE) ratio is not a static figure. If earnings improve, then the rating will be justified. A slump into a period of weak growth may prove to be sharply negative for stocks, but at present the data does not fully support a bearish view.

What’s happening this week?

Following on from Friday’s payroll figures will be Wednesday’s inflation data for the US, in the form of the Consumer Price Index (CPI).

Any sign of faster price increases in the US will be taken as a sign that tariffs are having an impact on the US economy. But markets have ‘looked past’ such data lately (i.e. they have ignored it) on the basis of the tariff pauses. UK employment data and trading figures from Tesco will also be worth watching.

Source : ig

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Michelle

Stocks

Economic

The chances of an acceleration in inflation numbers in the coming months are growing as President Donald Trump’s aggressive tariff regime begins to drive prices higher, according to analysts at JPMorgan Chase (NYSE:JPM).

In a note to clients on Monday, the analysts led by Mislav Matejka added that this trend, along with the risk of softening growth figures, could put the Federal Reserve in a "difficult position" as it assesses the future path of interest rates.

Should the dilemma facing the Fed worsen over the summer, U.S. equities and other international markets would likely be impacted, they said.

"JPM’s call is that recession will be avoided, but at 40% our economists believe the chances are not insignificant, and the current market pricing is probably underplaying this," the strategists wrote. "We believe the above combination of softer activity and at the same time higher inflation will drive a stalling in equity rebound that was in force over the past two months."

Against this backdrop, some of the brokerage’s top picks included European names like materials group Air Liquide (OTC:AIQUY), lenders Deutsche Bank and Societe Generale (OTC:SCGLY), carrier Ryanair, and consumer staples firm Unilever (LON:ULVR).

On the economic calendar this week, all eyes will be on the release of May’s reading of U.S. consumer price, which could provide a glimpse into the impact of Trump’s aggressive tariff policies on inflation.

The Labor Department’s consumer price index is tipped to speed up slightly to 2.5% from 2.3%, while the month-on-month gauge is expected to match April’s pace of 0.2%.

Cutting out more volatile items like food and fuel, the index is seen edging up to 2.9% year-over year and 0.3% on a monthly basis.

Following the release of the data on Wednesday, further data points are due out that track producer prices and consumer expectations for inflation in the months ahead.

Separate data last week showed that the U.S. added 139,000 jobs in May, falling from 147,000 in April but above economists’ estimates of 126,000, Labor Department data showed on Friday. April’s figure had originally stood at 177,000, while March’s total was also brought down by 65,000 to 120,000.

Federal employment declined by 22,000, reflecting an ongoing push by the White House to cut away at the size of the U.S. government workforce. Employment in the sector has slipped by 59,000 since January, when Trump returned to office for a second term in office.

Hiring in the health care, hospitality, and social assistance segments were trending up, the Labor Department’s Bureau of Labor Statistics said in a statement.

The unemployment rate was 4.2%, matching the previous month’s pace, while average hourly wage growth edged up to 0.4% month-on-month from 0.2%.

Source: Investing

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Warren Takunda

Central Bank

Economic

GBP/CAD was unable to break through the massive glass ceiling at 1.87 late May, in the process confirming a 'double top' technical pattern in the process (the March and May peaks).

From here, a continuation of the drift lower looks likely to us, and we think a test of the 50-day exponential moving average - now at 1.8470 - is in store soon.

Still, the broader multi-month trend remains to the upside, but a deeper consolidative period is underway, which could carry us through the Northern Hemisphere's summer months, denying UK-based CAD buyers the opportunity to transact at multi-year highs.

Canadian Dollar to Maintain Pressure on the Pound: The Week Ahead Forecast_1

Above: GBP/CAD at daily intervals.

To be sure, zooming out a bit on the charts shows these are still excellent levels for those buying CAD on an historical basis, but it might be some time before fresh highs are on tap again.

Weighing on GBP/CAD is last week's above-consensus Canadian employment figures that justify the Bank of Canada's decision made earlier in the week to keep interest rates unchanged.

In fact, it looks as though the Bank might cut just once more in the current cycle, which will prop up Canadian bond yields and relieve pressure on CAD.

Following Friday's employment report, Goldman Sachs economists removed a cut from their policy forecasts. They now expect the Bank to cut once this year to a terminal rate of 2.50%.

"While the labour market data was soft and the continued rise in the unemployment rate seems to confirm below trend growth, the weakness does not yet seem broad enough to prompt the BoC to cut imminently. Plus, the BoC still faces a difficult tradeoff between inflation and growth risks," says a weekly FX research note from Goldman Sachs.

"We think a more hawkish BoC, alongside better growth later this year, should support a stronger Canadian Dollar," it adds.

USD/CAD has ground lower since Goldman Sachs last revised its forecasts to show greater CAD appreciation in late-April. "We expect this pace of appreciation to continue and reiterate our optimistic view on the currency," says the Wall Street bank.

An additional headwind for GBP/CAD is receding trade tensions with China and the U.S. sending their trade negotiators to London this week to hash out a resolution on various sticking points required to unlock the trade accord recently agreed in Geneva.

"While Xi Jinping’s administration has shown determination not to bow down to Trump’s tariff intimidation, having already been forging deeper trading relationships with other nations, there are hopes that both sides will want to agree on a deal," says Susannah Streeter, head of money and markets at Hargreaves Lansdown.

The U.S. is seeking to restore flows of critical minerals, and China is seeking tariff reductions and an easing of export controls.

Progress here will settle nerves about the trade war and ultimately point to an overall tariff burden that is lower than a counterfactual where China and the U.S. fail to reach a resolution on outstanding issues.

This will help the U.S. Dollar and the Canadian Dollar, as the two North American currencies tend to benefit when trade tensions recede.

Source: Poundsterlinglive

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Adam

Economic

For US consumer giants, smaller is better.

Procter & Gamble, the maker of Tide laundry detergent and other household goods, announced a restructuring plan last week that includes cutting 7,000 people from its workforce and potentially exiting certain product categories over the next two years.

Anti-conglomerate

“We are evolving into the next phase of our organization design with a program that we have just announced today,” P&G executives said at a Deutsche Bank conference in Paris. “The strategy is inherently dynamic. It adapts to the changing needs of consumers, customers, society, and the geopolitical dynamics around us.”

Scale for scale’s sake appears to have become passé, with conglomerates jockeying for market share with a more focused brand identity than in the past:

Kimberly-Clark, the maker of Huggies diapers, said on Thursday it would sell a majority stake in its international tissue business to Brazilian paper company Suzano, which agreed to pay $1.73 billion in cash for 51% of the unit. The deal is expected to close next year. General Mills, the maker of Cheerios, completed the sale of its Canadian yogurt business to Sodiaal in January and received regulatory approval last week to offload its US yogurt unit to Lactalis. The companies plan to close the transaction later this month.

J.M. Smucker Co., the maker of Folgers, finalized its sale of Cloverhill, Big Texas, and private-label products to JTM Foods in March. Some 400 employees are part of the transaction. Those brands in the baked goods category were under Hostess Brands, which was acquired in 2023. Unilever, the maker of Dove soap and Hellmann’s mustard, is selling plant-based food brand The Vegetarian Butcher as part of its plans to slim its portfolio. It is in the process of spinning off its ice cream business, including Ben & Jerry’s and Talenti; the company announced last year that it would cut 7,500 jobs to simplify operations. Newly appointed CEO Fernando Fernandez said he was focused on “portfolio quality over portfolio scale” during his first earnings call as chief in April.

Breakups Pay Up: Shedding misaligned businesses can help boost growth, according to PwC. The Big 4 accounting firm’s analysis of US divestitures from 1998 to 2017 found that sellers tended to show higher growth in earnings before interest, taxes, depreciation, and amortization (Ebitda) in the years following a transaction. Record levels of US corporate cash and the dry powder sitting at private equity firms may also be inspiration enough for yard sales.

This post first appeared on The Daily Upside. To receive delivering razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter.

source : finance.yahoo

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