Markets are rather steady in Asian session today. Major forex pairs and crosses are staying in yesterday’s range. Dollar is a bit firmer entering into European session. But there is no follow through buying yet. US President Donald Trump’s cancellation of the summit with North Korean leader Kim Jong Un caused some jitters in the markets overnight. But sentiments quickly stabilized. Adding to that, North Korea’s diplomatic response today also calmed investors nerve. At least for now, there is no escalation of tension.
Attention will now turn back to economic data. Sterling and Euro are trading as the weakest two for the week. Both are vulnerable to further losses on data miss. German Ifo and UK GDP revision will be closely watched. In particular, BoE Governor Mark Carney has predicted an upward revision in Q1’s dismal 0.1% qoq growth. We’ll see if he gets what he wants. US will release durable goods orders later today. But the focus will be on 10 year yield. 3% handle was taken out firmly yesterday. And we’ll see if there is more bond buying to push yields lower.
Trump’s “sudden and unilateral” cancellation of summit with Kim, and North Korea’s response
Trump abruptly announced yesterday to cancel the summit with Kim on June 12 in Singapore. The announcement was through a letter to Kim, and tweeted by the White House (here is the letter).
North Korean Vice Foreign Minister Kim Kye Gwan responded today in a statement carried by state media. Kim said that Trump’s “sudden and unilateral” announcement to cancel the summit is unexpected. And she added that “we cannot but feel great regret for it”. Kim also noted North Korea remained open to dialogue with the US “regardless of ways at any time”. Also, “the first meeting would not solve all, but solving even one at a time in a phased way would make the relations get better rather than making them get worse.” And, the US should “ponder over it”.
Dallas Fed Kaplan not prepared for interest rates to go above neutral
Dallas Fed President Robert Kaplan said he’s “not prepared” for interest rates to “go above neutral”. And, he estimated that neutral rate is between 2.50% and 2.75%. And that is, after four 25bps hike from the current 1.50-1.75%, fed fund rate will hit the neutral level.
For inflation he said “I want to run around 2, and if we got a little bit above it and I thought it would be short term and not long term, I could tolerate it.” On the other hand, “if I thought it would persist I think it would affect my policy views.”
Philadelphia Fed Harker could support one more hike if inflation accelerates
Philadelphia Fed President Patrick Harker said if inflation start to “accelerate” then he’s “open to a fourth increase” in interest rate this year. But he emphasized that “I’d have to see evidence of that first”. And he noted that it’s not so much as a number around 2% but it’s acceleration or deceleration. He added that “if we’re creeping up to 2 percent and we creep up to, say, 2.25 percent, that’s a different story than [if] we’re accelerating past 2 percent. ”
Harker sees neutral rate as between 2.75% and 3.0%. And asked if Fed would end the current tightening cycle in 2019, he said “could be, yeah, it’s possible”.
Xi hailed Merkel’s effort in the bilateral ties
German Chancellor Angela Merkel was welcomed by Chinese President Xi Jinping in Beijing yesterday. Xi hailed her effort in the bilateral ties since the two countries launched an all dimensional strategic partnership in 2014. Xi urged that China and Germany should set an example of “win-win cooperation”. And, “this should be the direction that bilateral ties will move to in the next stage.”
In addition, Xi said the Chinese “welcome Germany to grasp opportunities arising from China’s new round of reform and opening up.” And, there should be expanded industrial and market cooperation. Xi added that “we would like to promote global governance and multilateralism together with Germany within the multilateral frameworks.”