US-CHINA: Geneva Consensus Agreed To, Up To Leaders To Agree On Implementation
Headlines are emerging from US-China trade talks in London. The main take away appears to be that both sides have reached an agreement to implement the consensus that was reached at Geneva meetings held in May. After this we had accusations from both sides that they were violating this agreement. It appears talks got back on track following the recent Trump-XI phone call.
- It was noted by both sides, after today's meetings in London, that they would travel back to their respective countries and seek approval from their leaders on implementing this framework.
- A lot of focus from the US side has been on more rare earth supplies reaching US customers- Bloomberg noted earlier: "The key issue this week is re-establishing terms of an agreement reached in Geneva last month, in which the US understood that China would allow more rare earth shipments to reach American customers. The Trump administration accused Beijing of moving too slowly, which threatened shortages in domestic manufacturing sectors.
- US Commerce Secretary Lutnick stated it is expected that the rare earths issue will be resolved. US Trade Representative Greer added that if the Geneva consensus is implemented then it could open up for further talks.
- From the China side, at this stage we haven't heard much other than that the two sides agreed a consensus on the Geneva meeting and that the framework will be reported to leaders (per RTRS).
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UK DATA: KPMG-REC Report on Jobs paints pessimistic picture but some glimmers
The KPMG-REC Report on Jobs continued to paint a pessimistic picture with regards to the UK labour market, but there were some glimmers of hope.
- There was a continued fall in permanent and temporary placements but the fall was at its slowest pace since September for permanent and since December for temporary placements.
- Starting salaries rose at a "solid pace" while increases in minimum/living wages led to the quickest rise in temporary pay for "nearly a year."
- However, candidate availability continued to rise, expanding at a greater pace for permanent than temporary workers and overall at the second fastest pace since December 2020 (slightly slower than in March).
- Demand for staff has now fallen in each of the past 18 months.
- Overall, to get a stronger signal on any bottoming out for the UK labour market we would need to see much more evidence than in this month's report.
BONDS: NZGBS: Cheaper With US Tsys After US-CH Trade Deal Progress
In local morning trade, NZGBs are 2-3bps cheaper with US tsy 10-year futures. TYM5 has reopened at 110-18, down 0-08 from closing levels in today’s Asia-Pac session on the back of US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland.
- On Friday, US tsys finished the session little changed, with limited first-tier economic data providing the market with direction.
- The WSJ reported "President Trump's suggestion of lowering tariffs on Chinese imports to 80% was just a number he "threw out there," White House press secretary Karoline Leavitt said without explaining more on how he arrived at the figure."
- Multiple Fed speakers commented on the economy after exiting the policy blackout. A smaller Federal Reserve balance sheet would benefit the economy by creating greater clarity about the central bank's main policy instrument and allowing officials to adhere closer to traditional policy rules, former Fed Governor Kevin Warsh.
- It will be a slow start to the week ahead. The main focus is on Tuesday's US CPI inflation data for April and Retail Sales next Thursday.
- Swap rates are 2-3bps higher.
- RBNZ dated OIS pricing is little changed across meetings. 26bps of easing is priced for May, with a cumulative 75bps by November 2025.
- Today, the local calendar will be empty.
JPY: USDJPY - Gaps Higher On Positive Talks
The overnight range was 144.83 - 145.46, Asia is currently trading around 145.80. USD/JPY has gapped higher on the Asian open to trade as high as 146.26 on US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland. Its has since pared back some of these gains.
- “Japan PM Shigeru Ishiba aims to reach a trade deal with Washington in July, around the time of an upper house election, Asahi Shimbun reported. The country initially hoped for a pact by mid-June.”(BBG)
- “The weaker wage and trade figures add to the case for the Bank of Japan to proceed cautiously with interest-rate hikes, with Governor Kazuo Ueda describing uncertainty as "extremely high" and highlighting his cautious stance.”(BBG)
- USD/JPY the 146.00/1.4700 area remains the first area in which sellers could be eager to get involved, then the more important 149/151 area.
- On the day gaps higher on an early Monday morning are normally filled back in, but it will be interesting to see how far the market can run on the positive sentiment coming out of the weekend meeting.
- CFTC data shows Asset managers pared back their already extensive JPY longs very slightly, and leveraged funds continue to build on their newly initiated shorts.
- MNI FX OPTIONS: Expiries for May12 NY cut 1000ET (Source DTCC): USD/JPY: Y142.45-50($1.0bln), Y144.00-05($510mln), Y145.00($1.9bln), Y145.65($950mln)
- Data/Event : Mar BOP, Apr Bank Lending, Apr Eco Watchers Survey
Fig 1 : USD/JPY CFTC Data
Source: MNI - Market News/Bloomberg
