Market Commentary: Monday 13th May

A volatile opening Monday session, markets initially fell in response to data showing Chinese credit shrank for the first time in April and that US President Biden is set to increase tariffs on Chinese electric vehicles, before news of Chinese bond issuance was released, reversing fortunes. The details are such that China is planning to start selling the first batch of its 1 trillion yuan ($138 billion) issue of ultra-long bonds, these include 20-year debt, 30-year notes and 50-year securities, enabling the CSI 300 to finish +0.17%.

There are 2 themes this week, inflation and domestically rate cuts. Last week the Bank of England hinted they are closer to cutting interest rates, but the markets are divided on whether a first cut will come in June or later. There are two sets of employment data and two rounds of inflation figures before the BoE’s next meeting on June 20. The first of the two jobs reports is on Tuesday and hence closely watched for signs that pay increases are fuelling price pressures. Annual pay growth is still running hot, while labour supply is stagnating. Economists expect average weekly earnings, excluding bonuses, to rise by an annual 5.9% in the first quarter signs that wage growth is moderating would likely bolster expectations for a June cut. On the Inflation front we see both US PPI data (Tuesday) and CPI data (Wednesday), hotter-than-expected inflation reading would likely price out rates cuts for the rest of the year, ouch!

Market wise, the yield on 10-year Treasuries was little changed at 4.49%, Spot gold fell 0.3% to $2,352.52 an ounce, West Texas Intermediate crude fell 0.3% to $77.99 a barrel. USDJPY opens at 155.90 and Cable at 1.2530. As for today the speeches from Fed's Jefferson and Mester will be the main events.

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