The action moves to China, with all-important inflation reports scheduled for today – Market Overview

By: Miguel A. Rodriguez

17:35, 15 June 2021

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The financial markets begin today's session without any noticeable events apart from what we already know: China’s Consumer Price Index and Producer Price Index.

In any case, the upward pressure on prices is maintained, and it should not be forgotten that China plays a fundamental role in the evolution of prices in the rest of the world. So, the demand and the elimination of bottlenecks in the supply chain could be vital to finding out if this phenomenon of price increases is persistent and could be transferred to consumer prices. In today’s markets, this report is perceived as the main factor of uncertainty. It could dictate the future of monetary policy, especially in the United States, where inflation expectations are higher.

Elsewhere, stock markets remain at high levels but with low levels of volatility and lacking momentum.

Meanwhile, the Treasury Bond Yields fall to 1.53% in the case of the U.S. 10-year benchmark TNOTE, and 0.23% in the case of Germany’s, pending the critical session of the week, which will take place tomorrow, with the U.S. CPI and the ECB meeting as main attractions.

Something that is influencing this upward movement in bond prices is the perception of growing geopolitical risk due to the increase in US-China tensions. This is partially due to President Biden's decision to promote a working group to improve the resilience of supply chains while new tariffs are raised on imports from China.

On the other hand, there is the possibility that the U.S. and the European Union could tackle the trade problem as soon as next week, potentially leading to the elimination of tariffs on steel and aluminium before the end of the year. Such a decision would remove a risk that had been hanging around the European economy for the past year and weighed on the price of the euro.

The possibility of enforcing customs duties on European automobile exports to the United States was an issue that was taken for granted and that ultimately did not occur. The fact that there is an approach and talks regarding eliminating tariffs is undoubtedly a positive element for the European economy. That would be a support factor for the euro.

EUR/USD is contained in a narrow trading range without a defined trend in the short- term pending tomorrow's ECB meeting. Although no decisive decision is expected, some reference could be made to the current currency levels in terms of its impact on monetary policy, especially its opposite effect on the achievement of inflation targets.

Sources:  Bloomberg, reuters.com.

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