Overview: A new tariff truce between the US and China, coupled with the North Korean diplomacy and Russia-Saudi tentative agreement boosted investor confidence and sharp equity rallies. Japanese and Chinese equities rallied 2-3%. Most markets rallied in Asia-Pacific except for South Korea’s Kospi and Hong Kong markets which were closed as the handover was commemorated. Europe’s Dow Jones Stoxx 600 was nearly 1% higher and at its best level in almost two months. The US S&P 500 is poised to gap higher to a new record high. Benchmark 10-year bond yields are mostly firmer, as Asia-Pacific bonds were dragged higher by pre-weekend upticks in US rates. European core bonds yields edged slightly higher despite disappointing manufacturing PMI readings, though the periphery, led by Italy has yields move lower. The dollar is firmer against all the majors and many emerging market currencies, though regional Asian currencies fared well. The Turkish lira was bolstered by Trump’s comments, claiming that Obama mistreated Erdogan and may reconsider sanctions if Turkey goes forward to take delivery of Russian anti-aircraft system, which is due over the next week or two. Gold prices slid (~1.5%) on new trade hopes, while oil is rallying on OPEC+ restraint and hopes that the trade thaw may bolster demand. Separately, fewer shipments from Australia and strong steel output in China are lifting iron ore prices after the biggest quarterly rise in three years.
The weekend optimism over the resumption of US-Chinese trade talks and Trump’s meeting with Kim in the DMZ has been checked by poor economic data. Japan’s Tankan survey and PMI manufacturing readings across the area, including Japan, China (Caixin), South Korea, and Australia (Australia Industry Group) fell. Separately, South Korea reported its seventh consecutive decline in exports (June -13.5% after May’s -9.5%). Exports are one of the