Yen tries to recover before US inflation data
The Japanese yen rose in Asian trade on Tuesday against a basket of major rivals away from six-week lows against the US dollar on active short-covering.
The recovery is underpinned by the losses in US 10-year treasury yields before major inflation data for April, which could provide crucial clues on the path ahead for Fed interest rates.
The Price
The USD/JPY price fell 0.5% today to 147.75, with a session-high at 148.45.
The yen tumbled 2.15% against the dollar on Monday, the third loss in four sessions, and the heftiest since March 2020, plumbing six-week lows at 148.65.
It’s the worst such loss in five years as haven demand tumbles while investors welcome a preliminary US-China trade deal.
Japanese Rates
The Bank of Japan Governor Kazuo Ueda said the timing of achieving the 2% inflation target could be delayed.
The markets estimate a 25% chance for a BOJ 0.25% interest rate cut in June.
Now traders await Japanese inflation, unemployment, and wages data later this week to gather more clues.
US Yields
US 10-year treasury yields fell over 0.5% on Tuesday and gave up a four-week high at 4.479%, on track for the first loss in four sessions, hurting the greenback.
Fed official Adriana Kugler said that Trump’s trade policies will likely raise inflation and impact growth negatively, despite the latest tariff pause.
Cleveland Fed President Beth Hammock said the Fed requires more time to assess the impact of Trump’s tariffs before deciding on the suitable response.
According to the Fedwatch tool, the odds of a 0.25% Fed rate cut in June stand at just 12%, with traders now waiting for major April inflation data for the US to gather more clues.
Wall Street expands gains, Dow Jones closes up 1160 points after US-China trade deal
US stock indices surged on Monday after the preliminary US-China pause on tariffs, bolstering hopes for avoiding a global recession due to a destructive trade war between the two largest economies.
Tariff Pause Restores Market Optimism
US Treasury Secretary Scott Bessent said the talks with China were very productive, with both sides cutting tariffs by 125% for 90 days.
Bessent expects to meet Chinese officials again in upcoming weeks to reach a more extensive deal.
Tech Shares Lead the Way
Tesla’s share spiked 7%, while Apple, Nvidia rose 6% and 5% respectively. Companies reliant on Chinese supply chains surged, with Dell Technologies up 8%, Amazon rose 8%, and Best Buy added 6%.
De-escalation of the Trade War
US-China trade tensions reached a peak in April, after President Donald Trump raised tariffs on Chinese goods to 145%, with China retaliating with 125% tariffs on US goods.
The escalation hammered the S&P 500 by 20% before stock indices regained their footing quickly after Trump paused reciprocal tariffs on most countries.
Markets Bet on Future Deals
Investors are betting the US administration will manage to make additional trade deal in the upcoming three months, especially with China, starting with the current announcement, and following a UK deal announced last week.
Market Response: Cautious Optimism
Analysts note the US-China deal is a huge surprise, but it remains a de-escalation step and note a final agreement, with the pause on tariffs still temporary.
US treasury yields surged as recession odds declined, nudging investors to reassess the odds of Fed rate cuts this year, while oil prices rallied as concerns about a global recession diminished.
Defensive Stocks Drop as Tensions Cool
So-called “defensive stocks” tumbled as tensions cooled and haven demand tumbled, with Coca-Cola’s share down 1.4%, while Philip Morrison shed 2.9%, and AT&T gave up 3%.
Performance at the Close
Dow Jones closed up 2.8%, or 1160 points to 42410 points, with a session-high at 42,418 points.
S&P 500 rallied 3.3% at the close, or 184 points to 5844 points, with the index up over 20% since April lows, reducing this year’s losses to 0.6%.
NASDAQ spiked 4.3%, or 779 points to 19,708 points, with a session-high at 18,710 points.
Oil climbs to two-week high
Oil prices rose on Monday amid a widespread optimism about the US and China paused most reciprocal tariffs for 90 days.
The US cut its tariffs on Chinese goods from 145% to 30%, while China reduced the tariffs on US products from 125% to 10% for 90 days.
Otherwise, the Russian Central Bank expects oil prices to settle at $60 a barrel in the future as global demand rebounds and trade tensions calm down.
In the US, the Energy and Trade Committee at the House of Representatives prepared a proposal to allocate over $1.5 billion to raise the strategic oil reserve.
On trading, Brent July futures rose 1.65% in July, or $1.05 to $64.96 a barrel, after hitting $66.40 earlier in the session.
US crude futures rallied 1.5% to $61.95 after scaling $63.61 earlier in the session.
