Tag: GBP

GBP/USD – British Pound Drops to 2018 Low as Inflation Heads Lower

The British pound has posted considerable losses on the Wednesday session. In North American trade, GBP/USD is trading at 1.3356, down 0.57% on the day. Earlier in the day, the pair touched a low of 1.3305, its lowest level since December. On the release front, British CPI continued to fall, coming in at 2.4%. This was shy of the estimate of 2.5%. Over in the US, New Home Sales dropped to 662 thousand, well off the estimate of 680 thousand. Later in the day, the Federal Reserve releases the minutes from the May policy meeting. On Thursday, the UK releases Retail Sales and the US will publish unemployment claims and Existing Home Sales.

Just a few weeks ago, there was a strong likelihood that the Bank of England would raise interest rates at the May policy meeting. However, a spate of weak economic releases and falling inflation resulted in policymakers standing pat, leaving rates at 0.50%. Are we in for a repeat performance in August? Inflation levels continue to drop, with April CPI falling to 2.4%, down from 2.5% a month earlier. The markets are eyeing two key indicators later in the week – Retail Sales and Second Estimate GDP. If these releases miss expectations, an August rate hike will be in serious doubt. Earlier in the week, the markets priced in an August hike at 50%, but this dropped to just 33% after Wednesday’s weak inflation data. The pound is also under pressure, and the downward spiral is likely to continue if this week’s indicators do not perform well.

On Tuesday, Bank of England Governor Mark Carney testified before a parliamentary committee. Carney acknowledged that growth in the first quarter was weak, blaming “temporary and idiosyncratic factors”, such as massive snowstorms which hampered economic growth. The BoE has forecast growth in Q1 of just 0.4%. As for monetary policy, Carney was subtle, saying that “interest rates are more likely to go up than not, but at a gentle rate”. The markets clearly have their doubts about a rate hike in August, as Wednesday saw the pound fall and the likelihood of an August rate hike drop, following another drop in inflation.

  Fed Minutes to Drive Market as Trade Concerns Recede

  Another Turkish Lira flash crash

GBP/USD Fundamentals

Wednesday (May 23)

  • 4:30 British CPI. Estimate 2.5%. Actual 2.4%
  • 4:30 British PPI Input. Estimate 1.0%. Actual 0.4%
  • 4:30 British RPI. Estimate 3.4%. Actual 3.4%
  • 4:30 British Core CPI. Estimate 2.2%. Actual 2.1%
  • 4:30 British HPI. Estimate 4.4%. Actual 4.2%
  • 4:30 British PPI Output. Estimate 0.3%. Actual 0.3%
  • 6:00 British CBI Realized Sales. Estimate 4. Actual 11
  • 9:45 US Flash Manufacturing PMI. Estimate 56.6. Actual 56.6
  • 9:45 US Flash Services PMI. Estimate 54.9. Actual 55.7
  • 10:00 US New Home Sales. Estimate 680K. Actual 662K
  • 10:30 US Crude Oil Inventories. Estimate -2.5M. Actual
  • 14:00 US FOMC Meeting Minutes

Thursday (May 24)

  • 4:00 BOE Governor Mark Carney Speaks
  • 4:30 British Retail Sales. Estimate 0.8%
  • 8:30 US Unemployment Claims. Estimate 220K
  • 10:00 US Existing Home Sales. Estimate 5.56M

*All release times are DST

*Key events are in bold

GBP/USD for Wednesday, May 23, 2018

GBP/USD May 23 at 10:35 DST

Open: 1.3432 High: 1.3442 Low: 1.3305 Close: 1.3356

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3088 1.3186 1.3301 1.3402 1.3494 1.3613

GBP/USD ticked lower in the Asian session. The pair posted considerable losses in European trade and has inched higher in the North American session

  • 1.3301 is providing support
  • 1.3402 is the next resistance line
  • Current range: 1.3301 to 1.3402

Further levels in both directions:

  • Below: 1.3301 and 1.3186 and 1.3059
  • Above: 1.3402, 1.3494, 1.3613 and 1.3712

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Wednesday session. Currently, long positions have a majority (60%), indicative of trader bias towards GBP/USD continuing to head lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

London House Prices Drop 0.2% in March

House prices in London tumbled in March, with the annualised rate of inflation dropping to minus 0.7%, the steepest fall since 2009, according to official Land Registry figures for March.

House prices across the UK fell by 0.2% in March, with prices dropping across much of the south of England.



Property experts in London said buyers are “sensing blood in the water”, with sellers forced to cut prices steeply to ensure a sale.

Jonathan Hopper of Garrington Property Finders said: “London is paying a painfully high price for its stellar run of price rises and a correction is now under way in several parts of the capital.

“Sellers are being forced to trim their expectations and astute buyers are increasingly sensing blood in the water.”

via The Guardian

UK Inflation Falls to 12 Month Low

UK inflation unexpectedly fell further last month to the lowest level in more than a year, as lower airfares provided some relief for cash-strapped Britons.



The consumer price index dropped from 2.5% in March to 2.4%, according to the Office for National Statistics (ONS). Economists had expected the annual rate of growth in prices to remain unchanged.

This decline will be welcomed by consumers under sharp pressure from rising prices since the Brexit vote, when a sudden drop in the value of the pound pushed up the cost of imported goods.

via The Guardian

U.S is a Net Energy Importer from Canada

Canada is the largest energy trading partner of the United States, based on the combined value of energy exports and imports. Although the value of bilateral energy trade with Canada has varied over the past decade, driven primarily by changes in the prices of oil and natural gas, the overall structure of bilateral energy trade flows has changed relatively little, with the value of U.S. energy imports from Canada consistently exceeding the value of U.S. energy exports to Canada by a large margin. Increasing energy commodity prices in 2017 led to growth in the value of both exports to and imports from Canada.

Based on the latest annual data from the U.S. Census Bureau, energy accounted for $18 billion, or about 6%, of the value of all U.S. exports to Canada. Energy accounted for $73 billion, or about 24%, of the value of all U.S. imports from Canada in 2017, up from 19% in 2016. Canada is the main source of U.S. energy imports and the second-largest destination for U.S. energy exports behind only Mexico.

Crude oil accounts for most U.S. energy imports from Canada, averaging 3.4 million barrels per day (b/d) in 2017. Canada is the largest source of U.S. crude oil imports, providing 43% of total U.S. crude oil imports in 2017. The value of U.S. crude oil imports depends on both volume and price. In 2017, the value of U.S. imports of Canadian crude oil increased, reaching $50 billion, as a result of both an increase in oil prices and an increase in volume. Canadian crude oil imported by the United States is largely produced in Alberta and consists mainly of heavy grades shipped primarily to the Midwest and Gulf Coast regions.

Until the removal of restrictions on exporting U.S. crude oil in December 2015, virtually all U.S. crude oil exports went to Canada. Since the United States began exporting more crude oil to other countries, Canada’s share of U.S. crude oil exports has fallen, although Canada still remains the largest destination for U.S. crude oil exports. In 2017, for the first time, the United States exported more crude oil, in total, to other countries (794,000 b/d) than it exported to Canada (324,000 b/d). U.S. crude oil exports to Canada are typically light sweet grades that are shipped to the eastern part of the country.

Bilateral petroleum products trade with Canada is relatively balanced in both volumetric and value terms. In 2017, Canada was the destination for 516,000 b/d of petroleum products, or 10% of all petroleum products exported from the United States. These exports were valued at more than $9 billion in 2017. However, the mix of petroleum product flows between the United States and Canada varies by product and region. For example, the United States is a net importer of gasoline from Canada, with significant volumes flowing from refineries in Eastern Canada to serve markets in the Northeast United States.

In contrast, very little of the petroleum products exported from the United States to Canada are finished transportation fuels. Pentanes plus, liquefied petroleum gases, and other oils constitute most U.S. product exports to Canada. Some of these products are used as a diluent to enable pipeline movement of heavy crude oils produced in Canada. Overall, U.S. petroleum product exports to Canada and other destinations have increased over the past decade.

Bilateral natural gas trade between Canada and the United States is dominated by pipeline shipments. Natural gas imports from Canada increased to 8.1 billion cubic feet per day (Bcf/d) in 2017, accounting for 97% of all U.S. natural gas imports. Total natural gas imports from Canada were valued at $7.3 billion in 2017. Most of Canada’s natural gas exports to the United States originate in Western Canada and are shipped to U.S. markets in the West and Midwest.

U.S. natural gas exports to Canada, which increased to 2.5 Bcf/d in 2017, mainly go from New York into the eastern provinces. Increases in pipeline capacity to carry natural gas out of the Marcellus and Utica shale formations increased flows of U.S. natural gas into Canada, reducing pipeline imports from Canada and increasing U.S. pipeline exports to Canada.

Electricity accounts for a small but locally important share of bilateral trade. In 2017, the value of U.S. imports of electricity from Canada increased for the second straight year, reaching $2.3 billion. The United States imported 72 million megawatthours of electricity from Canada in 2017 and exported 9.9 million megawatthours, based on data from Canada’s National Energy Board.

U.S Energy Information Administration

Turkish Lira Collapse Continues

Wednesday May 23: Five things the markets are talking about

Geopolitical risks from Turkey to N. Korea, from China to Italy, have pressured global equities in overnight trade. U.S Treasuries, along with the ‘mighty’ dollar have found support, while crude oil prices dropped along with most commodities.

Yesterday, U.S President Donald Trump tempered market optimism over progress made in trade talks between the U.S and China and his historic summit with N. Korea taking place.

Elsewhere, market concerns over Turkey’s financial-market stability has driven the TRY ($4.8792) to successive record lows outright and is weighing on emerging-market (EM) currencies, while safe-haven currencies, like the yen and CHF remain better bid.

Later today, the Federal Open Market Committee (FOMC) will release minutes of its May 1-2 policy meeting (02:00 pm EDT), while the ECB follows suit tomorrow (07:30 am EDT). Also this week, a plethora of U.S debt sales adds to the busy agenda.

1. Global stocks bleed red

In Japan, the Nikkei share average suffered its biggest fall in two months overnight, as Trump comments again ignited worries about trade friction, hurting steelmakers and shippers among others. The Nikkei tumbled -1.2%, while the broader Topix skidded -0.7%.

Note: The Nikkei volatility index jumped to three-week high of 16.41.

Down-under, Aussie stocks fared better than most regional bourses after yesterday’s region-leading declines. Nevertheless, the S&P/ASX 200 recorded its fifth consecutive drop, the first since January. The index fell -0.2% as the energy sector slid -2.3%. In S. Korea, Samsung stock has been a noted laggard this month after its equity split. But they rebounded with authority overnight, making Korea’s Kospi a rare gainer. Following yesterday’s holiday, the index rose +0.3%.

In Hong Kong, stocks posted their biggest intraday fall in two-months overnight, pulled down by energy shares, which slumped after Beijing intervened to cool the red-hot coal market. The Hang Seng index ended down -1.8%, while the China Enterprises Index closed -2.1%.

It was a similar story in China, a slump in coal miners dragged the blue-chip CSI300 index down -1.3%, while the Shanghai Composite Index declined -1.4%.

In Europe, regional bourses have opened lower and have continued that trend over geopolitical concerns and weaker than expected macro data supporting risk-off trading. Lower commodity prices are dragging on material stocks, while energy stocks are underperforming.

Note: This morning’s major Eurozone PMI data is raising market concerns over the extent of the recent slowdown in the recovery – France, Germany and Eurozone readings all missed expectations.

U.S stocks are set to open deep in the ‘red’ (-0.6%).

Indices: Stoxx50 % at 3,538, FTSE -0.6% at 7,826, DAX -1.5% at 12,975, CAC-40 -1.3% at 5,566; IBEX-35 -1.6% at 9,973, FTSE MIB -1.9% at 22,778, SMI -1.1% at 8,842, S&P 500 Futures -0.6%

2. Oil prices slip on potential easing of OPEC supply curbs, gold lower

Oil prices have eased overnight as the possibility of higher OPEC output is weighing on the market, although geopolitical risks are expected to keep prices near multi-year highs.

Brent futures fell -37c, or nearly -0.5%, to +$79.20 a barrel, after climbing +35c yesterday. Last week, the global benchmark hit $80.50 a barrel, the highest print in four years. U.S West Texas Intermediate (WTI) crude have eased -21c, or nearly -0.3% to +$71.99 a barrel.

OPEC may decide to raise oil output as soon as next month due to worries over Iranian and Venezuelan supply and after the U.S raised concerns the oil rally was going too far.

Note: To date, OPEC-led supply curbs have largely cleared an inventory surplus based on the deal’s original goals.

Capping prices to a certain extent is the rising supply in the U.S, where shale production is forecast to hit a record high in June.

Note: API data yesterday showed that U.S crude and distillate stockpiles fell last week, while gasoline inventories increased unexpectedly.

Ahead of the U.S open, gold prices have slipped a tad, pressured by a firm dollar ahead of today’s FOMC minutes for May 1-2 meeting. Spot gold is -0.1% lower at +$1,289.71 per ounce. U.S gold futures for June delivery are down -0.2% at +$1,289.40 per ounce.

3. Sovereign yields fall

Italy continues to take center stage in the sovereign bond market as dealers focus shifts to the implementation of the coalition’s ambitious agenda and its potential ministers. Will the incoming government sully Italy’s relations with E.U?

Note: Italy’s government debt remains heavily dependent on support from the ECB’s bond purchases, and the country’s wider financial system is more closely linked to government debt markets than in much of Europe.

For German Bunds, the safety bid continues to gather pace as the Italian BTP sell-off spills over into the core market. Germany’s 10-year Bund yield has decreased -3 bps to +0.53%. The gap between Italy and Germany’s government bond yields has climbed to +192 bps, the highest in nearly a year – the spread has increased more quickly than at any time in the last five years.

Elsewhere, the yield on 10-year Treasuries has dipped -3 bps to +3.03%, the lowest in more than a week, while in the U.K, the 10-year Gilt yield has declined -5 bps to +1.523%.

4. The collapse in TRY continues

The collapse of the Turkish lira continues, with the currency proving vulnerable again overnight in thin trading. USD/TRY has rallied around +4% to a record high of $4.8522 ahead of the open after rating agencies sounded the alarm over plans by President Erdogan to tighten his grip on monetary policy.
The lira has fallen around -20% outright so far this month.

In the U.K, lower inflation (see below), is causing sterling to fall to a five-month low of £1.3346 against the dollar, although this partly also reflects dollar strength. Also, politics continues to play a role, with recent comments from a government official showing risks of a U.K leadership change have returned. EUR/GBP is up by +0.1% at €0.8778.

Note: With U.K inflation easing again m/m, the chances of a BoE interest rate increase any time soon are diminishing.

The EUR/CHF (€1.1611) cross continues to move away from its key level of €1.2000 (former SNB floor). The cross is again probing the lower end of its €1.16 area after testing the former floor only a few weeks ago.

5. U.K inflation at its slowest in 12-months

Data this morning showed that U.K consumer inflation was at its slowest in more than a year in April.

Consumer price inflation stood at +2.4% in the year to April, easing from +2.5% in March.

Digging deeper, according to ONS (office for National Statistics), falling airfare prices is contributing to cooling inflation. Airfares fell -0.2% on the month vs. a +18.6% rise in the same month last year. Also behind the softening was a slip in house prices in London.

Note: BoE Governor Carney told lawmakers yesterday that the bank might raise rates in “a few months.” Policymakers stood pat at their previous meeting as official data pointed to weak economic growth in Q1, 2018.

Forex heatmap

Fed Minutes to Drive Market as Trade Concerns Recede

The US dollar is mixed ahead of the release of the minutes from May’s Federal Open Market Committee (FOMC) meeting. The central bank held rates unchanged but there is almost 100 probability of a 25 basis points rate hike at end of the June 13 meeting. Commodity currencies were higher at the beginning the North American trade session only to fall as commodity prices gave way. Safe haven currencies rose after US President Trump said the June 12 Peace summit between North and South Korea could be delayed.

  • US Crude oil inventories expected to drop by 2.5 million barrels
  • UK inflation to remain steady at 2.5 percent
  • US 10 year bond yields were flat ahead of FOMC minutes

EUR Still on Backfoot due to Italian Politics

The EUR/USD lost 0.07 percent on Tuesday. The single currency is trading at 1.1783 ahead of the release of the notes from the Fed’s monetary policy meeting. The EUR is still struggling with the fallout of the Italian coalition. The latest from the union between the 5 Star Movement and the League is the nomination of Giuseppe Conte as prime minister. The lack of experience from the lawyer and academic did not inspire much confidence with the markets.



With rise of euro scepticism in the area the last thing needed was criticism from German economists who do not agree that the deeper integration proposed by French President Emmanuel Macron. 154 German economists criticized the call to protect the currency union and instead bring back the argument that economic reform is needed with member states who are struggling. Also opening the door to creating an orderly process for nations to exit the Union.

The economic calendar this week will not any major releases with mostly lagging indicators in the agenda. European producer managers index (PMIs) and the minutes fro the European Central Bank (ECB) meeting could offer some insight but investors are looking forward to more guidance from the central bank which so far has remained very quiet on what are its plans after the massive quantitive easing program runs its course in September.

Loonie Gets Commodities and Trade Boost

The USD/CAD appreciated 0.26 percent in the last 24 hours. The currency pair is trading at 1.2819 as the loonie bounced back during the Asian trading session from disappointing retail sales data on Friday and a long weekend after the Victoria Day holiday. Commodity prices rose as the USD rally ended after trade tensions eased with China. Strong commodities in particular oil prices boosted the CAD as well a strong signal the US is more open to trade negotiations as the fate of NAFTA remains to be decided. Energy prices could not maintain the upward momentum and West Texas Intermediate fell below $72 but geopolitics is keeping energy prices at 3 year highs.


usdcad Canadian dollar graph, May 22, 2018

The economic calendar this week will be dominated by the release of the Fed minutes. The market is pricing in a June rate hike and investors will scan the notes from the Federal Open Market Committee (FOMC) looking for further clues on the path of monetary policy. Fed members have supported two or more rate hikes this year. The Bank of Canada (BoC) is expected to hold its rate untouched in May at 1.25 percent after a string of soft data is not putting as much pressure as earlier in the year.

Core retail sales dropped by 0.2 percent instead of the 0.5 percent expected growth. Tuesday’s release of wholesales sales beat the forecast with a 1.1 percent gain and an upward revision to the previous 0.8 percent loss that now stands at –0.4 percent.

Oil Reaches 3 Year High on Supply Concerns

West Texas Intermediate is trading at $71.98 and trading near 3 year highs due to geopolitical events. The fundamentals of the energy markets call for a lower valuation as demand has not grown to levels that justify current prices. The Organization of the Petroleum Exporting Countries (OPEC) agreement with other major producers, most notably Russia, accomplish the goal of stability but it is now the uncertainty in the Middle East that drives price action.


West Texas Intermediate graph

Investors are aware of a risk that a rapid decline could come, but it could be achieved only if there is political stability in the region, a long shot at this point. Or if there are significant changes in how big oil producers not part of the deal react to higher prices. The US has slowly ramped up their production but with fundamentals only in the periphery at this time it could be some time before the market prices in higher oil production.

The situation in Venezuela and Iran could end up keeping prices at 3 year highs as supply disruptions have been the most effective factor dictating crude prices. Timing wise the start of the driving season in North America will be supportive as season demand rises.
Market events to watch this week:

Wednesday, May 23
4:00am AUD RBA Gov Lowe Speaks
4:30am GBP CPI y/y
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Meeting Minutes
Thursday, May 24
4:30am GBP Retail Sales m/m
7:30am EUR ECB Monetary Policy Meeting Accounts
Friday, May 25
4:30am GBP Second Estimate GDP q/q
8:30am USD Core Durable Goods Orders m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

GBP/USD – British Pound Unchanged after Carney Testimony

The British pound is showing little movement in the Tuesday session. In North American trade, GBP/USD is trading at 1.3427, unchanged on the day. On the release front, Britain posted a deficit of GBP 6.2 billion, below the estimate of 7.2 billion. This marked the first deficit after a string of three straight surpluses. British CBI Industrial Order Expectations disappointed with a reading of -3, missing the estimate of 2 points. This was the first decline since October. In the US, the Richmond Manufacturing Index jumped to 16, well above the estimate of 9 points. On Wednesday, the UK releases a host of inflation indicators, led by CPI. The Federal Reserve will release the minutes of its May policy meeting.

Bank of England Governor Mark Carney testified earlier on Tuesday before a parliamentary committee, but his remarks have had little impact on the British pound. Carney acknowledged that growth in the first quarter was weak, blaming “temporary and idiosyncratic factors”, such as massive snowstorms which hampered economic growth. The BoE has forecast growth in Q1 of just 0.4%. As for monetary policy, Carney was subtle, saying that “interest rates are more likely to go up than not, but at a gentle rate”. The bank balked at a rate hike earlier in May, due to weakening inflation and a spate of soft economic data. BoE policymakers are unlikely to raise rates before August at the earliest.

After weeks of an escalating trade war between the US and China, there was a breakthrough of sorts on Sunday. The US dollar has posted gains after Treasury Secretary Steven Mnuchin announced that the two sides had made significant progress and the trade war was being ‘put on hold’. Just last week, the White House sounded pessimistic about a deal being reached with China. The two economic giants have imposed stiff tariffs on one another in recent weeks, worth billions in trade. These moves had raised fears of a bilateral trade war between the two largest economies in the world. The respite in tariffs means that the US can sit down with the Chinese and discuss the US trade deficit with China, which President Trump has long complained is a result of a non-level playing field with China. In addition to the trade deficit, the US wants to discuss technology transfers and cyber theft.

  Commodity currencies are beaming

  China to cut Tariffs on some Auto Parts and Vehicles

GBP/USD Fundamentals

Tuesday (May 22)

  • 4:15 British MPC Member Gertjan Vlieghe Speaks
  • 4:30 British Public Sector Net Borrowing. Estimate 7.2B. Actual 6.2B
  • 5:00 British Inflation Report Hearings
  • 6:00 British CBI Industrial Order Expectations. Estimate 2. Actual -3
  • 9:59 US Richmond Manufacturing Index. Estimate 9. Actual 16

Wednesday (May 23)

  • 4:30 British CPI. Estimate 2.5%
  • 4:30 British PPI Input. Estimate 1.0%
  • 4:30 British RPI. Estimate 3.4%
  • 6:00 British CBI Realized Sales. Estimate 4
  • 10:00 US New Home Sales. Estimate 680K
  • 14:00 US FOMC Meeting Minutes

*All release times are DST

*Key events are in bold

GBP/USD for Tuesday, May 22, 2018

GBP/USD May 22 at 11:25 DST

Open: 1.3427 High: 1.3491 Low: 1.3412 Close: 1.3427

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3186 1.3301 1.3402 1.3494 1.3613 1.3712

GBP/USD ticked lower in the Asian session. In European trade, the pair posted gains but then retracted. GBP/USD is showing little movement in the North American session

  • 1.3402 is a weak support level
  • 1.3494 is the next resistance line
  • Current range: 1.3402 to 1.3494

Further levels in both directions:

  • Below: 1.3402, 1.3301 and 1.3186
  • Above: 1.3494, 1.3613, 1.3712 and 1.3796

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, long positions have a majority (61%), indicative of trader bias towards GBP/USD breaking out and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Italian Bond Yields Off Highs after Six Days of Selling

Italian government bond yields came off 14-month highs on Tuesday as the market paused after six days of heavy selling on concerns over the high-spending policies mooted by a potential coalition government in the euro zone’s third-largest economy.

The likelihood of a new Italian government being formed by the 5-Star Movement and the far-right League has pushed Italian 10-year yields up nearly 70 basis points since the start of the month, potentially making the debt attractive again for some.

“We’re in the realms of markets being very technical, and the fact that there’s no real news overnight is an opportunity for some to add a little to their positions,” said Mizuho strategist Peter Chatwell, though he cautioned against reading too much into the moves.

Italy’s 10-year government bond yield fell 2.5 basis points to 2.31 percent, well below the 14-month high of 2.418 percent hit in earlier trade.

The closely watched Italy/Germany 10-year bond yield spread hit 189.6 bps before settling at 182 bps, still wider than any closing price since June 2017.

Spanish and Portuguese yields also came sharply off the multi-month highs touched on Monday, dropping 8-12 basis points.

Yet they provide an alternative for Italian BTPs given the uncertainty around that country’s future, according to Mizuho analysts.

“We expect Spanish bonds to find demand as a BTP substitute, and see best value in the five-year sector on the curve,” they said in a note.

Italy’s M5S and the League have proposed Giuseppe Conte, a little-known law professor, as prime minister to lead the coalition, which many fear will boost spending and raise the country’s debt levels.

“Conte looks rather like a puppet for the 5-star and League leaders to push through their agenda,” said Commerzbank strategist Christoph Rieger.

He added that though the programme put forward by the two parties does not appear as radical as first rumoured, it is clear that Italy is now “clearly abandoning all fiscal restraint”.

The cost of insuring against Italian government debt souring was at its highest in 7 months with Italy’s 5-year credit default swaps (CDS) rising to 142 bps, according to IHS Markit.

Elsewhere, higher-grade euro zone government bond yields moved 1-4 bps higher as sentiment improved across markets, and European stocks rallied as well.

The yield on Germany’s 10-year government bond, the benchmark for the region, was 4 bps higher at 0.56 percent.

Reuters

China to cut Tariffs on some Auto Parts and Vehicles

China’s Finance Ministry said that it will cut import tariffs on some vehicles to 15 percent, down from as much as 25 percent.

The announcement Tuesday also said that tariffs on some automotive parts would fall to 6 percent. The cuts will be effective from July 1.

The move signifies an attempt to open up the world’s largest auto market to international players. Discussion of a potential automotive sector tariff cut surfaced in April, and was mentioned in a speech by Chinese President Xi Jinping that month. It was also revealed that China would permit full foreign ownership of car makers in five years.

According to the Finance Ministry on Tuesday, the average tax on qualifying vehicles will now be 13.8 percent. Car parts to have import duties lowered include bumpers, doors and seat belts.

The European automotive sector was trading up just over 0.7 percent Tuesday morning, with German parts maker Schaeffler leading the way. Higher-end car makers could stand to benefit from the decision, given that less production for these models has shifted to China. Toyota’s Lexus could do well, given it currently does not make its cars in China and has not announced any plans to move manufacturing into the country.

BMW could also gain from the tariff cut. Previous analysis had suggested that the German auto maker would be hit by China’s implementation of import tariffs against the U.S. last month given that it builds a significant amount of its cars in the U.S. and then ships them to China.

The levy reduction sends “a strong signal that China will continue to open up,” a spokesperson for BMW said in a statement. “This will certainly benefit the customer and boost the market to an even more dynamic level,” it added. BMW also said that it would review its pricing in response to the news.

Meanwhile, a spokesperson for U.S. carmaker Ford said that the firm welcomed China’s announcement.

Chinese car imports rose 16.8 percent year-on-year in 2017, according to state-run news agency Xinhua in February, citing the China Automobile Dealers Association. Around 1.21 million vehicles were brought into the country.

A trade rapprochement?

Tension over a potential trade war between China and the United States has eased in recent days following talks between top officials.

Over the weekend Vice Premier Liu He met with Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross among others in Washington, discussing how China could buy more agricultural and energy products from the U.S. to ease the trade deficit.

President Donald Trump tweeted that China had “agreed” to buy “massive amounts” of additional agricultural commodities, calling the news “one of the best things to happen to our farmers in many years.”

The meeting also yielded wins for China, with news that previously planned U.S. duties on Chinese imports, which threatened $50 billion-worth of trade, had been suspended. It has also been reported that the two countries are close to securing a deal on Chinese software firm ZTE, which had been banned from selling in the U.S. due to its violation of American sanctions on Iran and North Korea.

In an interview with CNBC Monday, Mnuchin said that “meaningful progress” had been made with China. “This has been a trade dispute all along, it never was a trade war,” he added.

CNBC

Canada: Wholesale trade, March 2018

Wholesale sales rose 1.1% to $62.8 billion in March, more than offsetting the decline in February. The motor vehicle and parts subsector contributed the most to the gain. Excluding this subsector, wholesale sales rose 0.2%.

Sales were up in four of seven subsectors in March. In volume terms, wholesale sales rose 0.8%.

In the first quarter of 2018, wholesale sales rose 0.5% in current dollars and 0.4% in constant dollars compared with the fourth quarter of 2017. For both current and constant dollars, this marked the eighth consecutive quarterly increase

Higher sales in four subsectors

The motor vehicle and parts subsector recorded the largest gain in dollar terms, with sales rising 5.0% to $11.8 billion, following three consecutive monthly declines. Lower sales in the other two industries within the subsector were outweighed by gains in the motor vehicle industry (+6.6%), where sales rose following five consecutive monthly declines. This was the highest sales level since the record high in September 2017 for both the subsector and the industry. Imports of passenger cars and light trucks were up in both February and March.

Sales in the building material and supplies subsector increased 3.4% to a record high $9.2 billion. Sales were up in every industry, led by the metal service centres industry (+9.4% to $1.9 billion). Related indicators including imports of metal and non-metallic mineral products and the Industrial Product Price Index for primary ferrous metal products and primary non-ferrous metal products also increased in March.

The personal and household goods subsector rose 0.6% to $8.8 billion. Gains in the pharmaceuticals and pharmacy supplies industry (+3.6%) offset declines in other industries.

Sales in the food, beverage and tobacco subsector declined for the second consecutive month, down 1.4% to $11.9 billion in March. The food products industry (-1.5%) accounted for most of the decline in the subsector.

Sales in the machinery, equipment and supplies subsector fell for the second time in three months, down 0.5% to $12.6 billion in March. The computer and communications equipment and supplies (-3.2%) and the construction, forestry, mining, and industrial machinery, equipment and supplies (-2.5%) industries led the declines.

On a quarterly basis, the food, beverage and tobacco (+2.0%) and the machinery, equipment and supplies (+1.8%) subsectors led the gain in the first quarter of 2018, their second consecutive quarterly gain. The gains in these subsectors were attributable to record high sales in January (food) and February (machinery).

Sales up in two provinces, led by Ontario

Sales were up in two provinces in March, which together accounted for 56% of wholesale sales in Canada. In dollar terms, Ontario contributed the most to the gains.

Sales in Ontario rose 2.5% to $32.8 billion in March, on the strength of higher sales in four of seven subsectors. This was the largest monthly increase for the province since January 2017. The motor vehicle and parts subsector (+7.7%) contributed the most to the gain, following five consecutive monthly declines. The building material and supplies subsector (+8.0%) also contributed to higher sales in Ontario with its second consecutive monthly gain.

In Saskatchewan, sales increased for the first time in five months, up 2.5% to $2.1 billion, on the strength of higher sales in three subsectors. The gain was led by higher sales in the miscellaneous subsector (+11.6%), following a 12.1% decline in February. The agricultural supplies industry contributed the most to the gains in the miscellaneous subsector.

Sales were down in Quebec for the fourth time in five months, declining 0.6% to $11.2 billion. Lower sales in the food, beverage and tobacco (-6.2%) and the building material and supplies (-2.5%) subsectors contributed the most to the decline. The food, beverage and tobacco subsector declined for the first time in 2018, while the building, material and supplies subsector decreased for the second time in three months. Despite the decline in March, sales in Quebec were up 0.1% in the first quarter of 2018, their eighth consecutive quarterly increase.

Following three consecutive gains, sales in Alberta declined 0.7% to $6.7 billion in March, led by the machinery, equipment and supplies subsector (-2.6%). This subsector has declined 4.5% in value over the past two months.

Inventories edge down in March

Wholesale inventories edged down 0.1% in March to $82.6 billion. Decreases in three subsectors, representing 32% of total wholesale inventories, were offset by gains in three other subsectors.

Inventories in the motor vehicle and parts subsector decreased 1.3% in March, accounting for the largest drop in dollar terms. The motor vehicle industry (-3.0%) was the sole contributor to the decline.

The personal and household goods subsector (-0.6%) decreased for the first time in 2018. Lower inventory levels in the personal goods industry (-6.1%) contributed the most to the drop.

Higher inventories in the building material and supplies subsector (+0.8%) were led by higher stock levels in the metal service centres industry (+4.6%).

Inventories in the miscellaneous subsector (+0.5%) rose for the fourth time in five months, led by the recyclable material (+16.0%) and agricultural supplies (+1.0%) industries.

The inventory-to-sales ratio decreased from 1.33 in February to 1.31 in March. This ratio is a measure of the time in months required to exhaust inventories if sales were to remain at their current level.

Stats Canada