London Open: Markets squarely focused on reopening of economies

Markets remain squarely focused on the reopening of economies globally, with deteriorating labor markets and rising new coronavirus cases in Korea and Wuhan given short shrift. Implied US equity and FX vols continue to slide, while US rates vol is nudging higher, albeit from low levels.

China 

China's inflation is likely to moderate further in Q2 compared to Q1 as the prices of pork and fresh vegetables and fruits have come down gradually since early April. A slow recovery in domestic demand, and an increasing number of Chinese exporters converting their goods into local sales, may also limit the near-term pace of price pickup. Overall, moderation in inflation pressure could help relax the constraints on the PBoC's monetary policy. Expect more easing to come after NPC.

Australia 

The Aussie has been under pressure most of the day, primarily due to tariff issues with China; first barley, now beef.

If the 'higher beef tariffs’ sound familiar, that's because it is. In August last year, China's customs announced that imports of eight categories of Australian beef had reached the safeguard amount and levied higher tariffs. This time, however, the timing seems more political.

The risk, of course, is that this broadens out to more critical areas such as iron ore, coal, education, LNG, etc. But if it stays at beef and barley, economically it shouldn't matter much for Australia.

All of which is getting compounded as Australia's April NAB survey shows business conditions falling to -34 from a downwardly revised -22 in March, but business confidence rising to -46 from an upwardly revised -65.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.