- RBNZ inflation expectations survey: 1 yr CPI seen at 2.44% (prior 2.25) 2 yr 2.54% (2.47)
- Morgan Stanley raises China GDP forecast to 4.5% for 2025 amid easing trade tensions
- USD weakness extends
- G7 weighs joint tariffs on low-value Chinese imports amid overcapacity concerns
- ICYMI – China gold imports surge to 11-month high
- ICYMI – Moody’s US downgrade sparks concern among Hong Kong pension funds
- US politics – tentative deal for $40,000 SALT deduction reached
- PBOC sets USD/ CNY central rate at 7.1937 (vs. estimate at 7.2133)
- China’s Commerce Ministry says US measures on China chips are bullying, protectionist
- Australian Leading Index for April 0.0% m/m (prior -0.2%)
- CNBC: Musk says AI could run into power capacity issues by middle of next year
- Japan April exports +2% y/y (expected +2%)
- Mexican Economy Minister says autos exported to US will face average 15% tariff, not 25%
- Fed’s Hammack says sentiment data about the economy has been concerning
- Reuters Tankan report has manufacturing sentiment at 8 in May, down from 9 in April
- New Zealand April exports higher than in March: NZD7.84bn vs 7.41bn
- Apple CEO Tim Cook met with Trump on Tuesday at the White House
- Oil has jumped on the CNN report Israel is planning to attack Iran nuclear facilities
- CNN is reporting that Israel is planning an attack on Iranian nuclear facilities
- HSBC sees G10 FX consolidation as trade risks fade; AUD, NZD may firm
- JP Morgan sees modest USD depreciation ahead amid rebalancing, hedging flows.
- US FAA issued an order reducing the flight arrival and departure rate at Newark Airport
- Fed’s Kugler speaking – does not comment on monetary policy nor on her economic outlook
- AUD: CBA brings forward RBA rate cut forecast, flags risk of earlier and deeper easing
- Oil: private survey of inventory shows headline crude oil build vs. draw expected
- Forexlive Americas FX news wrap: Canada rate cut hopes dwindle after hotter core CPI
- Trade ideas thread for Wednesday, 21 May, insightful charts, technical analysis, ideas
Geopolitical
tensions in the Middle East flared after CNN reported that U.S.
intelligence believes Israel is preparing for a potential strike on
Iranian nuclear facilities. The report, based on unnamed
American officials familiar with recent intelligence, suggests that
Israel’s military planning is well underway — though any action
may hinge on the outcome of ongoing nuclear negotiations between
Washington and Tehran. While the report is heavily caveated, the
underlying message from U.S. sources is clear: a strike is a live
possibility. Energy markets reacted swiftly, sending
crude
prices surging
higher. They’ve since had some retracement.
In
politics we had a unanimous 100–0 vote in the US Senate to pass the
No
Tax on Tips Act,
effectively making all tips tax-free. While the measure is being
framed as a win for service workers, some analysts warn of unintended
consequences. With tips now exempt from taxation, there’s concern
that efforts by workers and unions to push for higher base wages may
lose momentum, as employers shift more compensation into variable,
tip-based income. And since tips were already lightly taxed or often
underreported, the net impact could ironically result in lower
after-tax income for many low-wage workers.
Staying
in Washington, Politico reports a tentative agreement has been
reached to raise the cap on state and local tax (SALT) deductions to
$40,000 as part of the broader GOP tax package. According to three
Republican lawmakers familiar with the closed-door talks, the deal
marks progress toward finalising the megabill, though some internal
objections remain and further negotiations are expected. While not
yet final, the proposed increase would represent a significant
concession aimed at winning broader support for the legislation.
We
had comments from three Fed officials. Cleveland
Fed President Beth Hammack, San Francisco Fed President Mary Daly,
and
Atlanta Fed President Raphael Bostic. All three signalled caution,
Hammack summing it up by saying the
best course of action for the Federal Reserve right now is to “sit
on our hands” and closely monitor incoming data. Bostic
added that on issues like trade policy, clarity appears to be “moving
further into the future.”
From
Japan we had trade data for April showing a surprise deficit.
Exports
to US fell
in April for first
time
in four
months.
Also in Japan, 30-year and 40-year JGB yields have remained at or close to record highs.
China’s
Ministry of Commerce (MOFCOM) strongly criticised recent US guidance
warning companies against using advanced Chinese semiconductors,
including Huawei’s Ascend AI chips. In a statement, a MOFCOM
spokesperson described the move as a “typical example of unilateral
bullying and protectionism,” accusing Washington of imposing
discriminatory restrictions on Chinese firms.
I’ve
noted the big mover, oil, above. But FX was not quiet. The upshot of
all the developments is a lower US dollar on the session here. All
major FX is higher against the friendless dollar. EUR/USD is up a
solid 50 points while USD/JPY and USD/CHF are down similar. GBP, AUD,
CAD, NZD all higher also.
Gold
has been lacklustre but is near its session high as I update.
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