Chinese inflation data over the weekend showed signs that deflationary pressures were easing. YoY data showed a modest 0.2% gain on the previous read of 0.1% to 0.3%, the third straight increase. The PPI YoY showed a modest gain of 0.3% to print at -2.5% from last month's -2.8%, albeit the market was keen to see -2.3%. It was the 19th fall in a row but moving in the right direction. However, one set of data does not represent a trend. It is a step in the right direction and shows that the PBoC stimulus policies are helping to lift the economy. This should help support commodity markets, especially copper and iron ore. The Dow tentatively closed the week trading up, capping 8 days of winnings, which seems perplexing given that recent data is reaffirming expectations that rate cuts are on hold. However, Michigan Uni consumer spending sentiment fell to a 6-month low. The balancing act the Federal Reserve (Fed) is following does seem to placate investors as they are not willing to adjust asset prices to reflect the potential for a weakening economy but rather more interested that economic pressure can be relieved in an instance by cutting the cost of money. Comments from FED officials on Friday advocated a cautious stance on lowering interest rates, as they weigh surprisingly strong inflation data in the last few reads.  Developments at the UN and protests at the Eurovision Song Contest look to be driving a wedge between Israel and her supporters. The UN’s vote on support for a two-state resolution may help to provide the basis for a much-needed settlement. We can only pray that it does.

But first, let's take a deeper dive into the inflation data in China. China's annual inflation rate rose to 0.3% in April 2024, compared with market estimates and March's figure of 0.1%. It was the third straight month of consumer inflation amid an ongoing recovery in domestic demand despite a fragile economic revival. Non-food inflation accelerated (0.9% vs 0.7% in March), with prices rising further for clothing (1.6% vs 1.6%), housing (0.2% vs 0.2%), health (1.6% vs 1.5%), and education (1.8% vs 1.8%). If you take out food and energy, the core rate increases by 0.7% YoY, which is a positive sign that the economy is slowly picking up and the stimulus is getting some traction. Producer Prices declined by 2.5% YoY in April 2024, compared with market forecasts of a 2.3% fall following March's figure of a 2.8% decrease. It marked the 19th straight month of contraction in factory-gate prices, underlining persistent economic uncertainty despite multiple support measures from the government. Data on inflation and producer prices shows mixed signs that the economy is trying to advance. The market continues to look for more stimulus; however, we feel that the PBoC is happy to adopt more of a wait and sees as the green shoots of recovery are present.

In the US, preliminary estimates showed that the University of Michigan consumer sentiment index fell to 67.4 in May 2024 from 77.2 in April, the lowest in six months and missing market expectations of 76. Inflation expectations for the year ahead increased to 3.5%, the highest in six months, from 3.2% in April. Also, the five-year inflation outlook hit 3.1%, the highest in six months, from 3.0%. Finally, both current conditions (68.8 vs 79 in April) and expectations (66.5 vs 76) declined. Consumers expressed worries that inflation, unemployment and interest rates may all be moving in an unfavourable direction in the year ahead. Fed commentary continues to indicate a wait-and-see on moving rates; however, with data like this indicating a lack of confidence, the balancing act the Fed has is even more delicate. Although we agree that rates will not be going up, the timing of when they will be going down will be crucial.

Investors seem to be comfortable with the view that rates will only be going down in the US and have taken a bullish view on equities. This is contra to our view that the high cost of money should see revisions and profit warnings. The recent spate of company earnings in the US continues to mix; however, companies continue to cut jobs in 2024 even after the big wave of layoffs last year. Amazon, IBM, Google, UPS and Tesla are among those that continue to shed jobs. The quickest way to make a profit is to cut the cost of labour. If the S+P 500 breaches 6250, we will be reviewing our positions and rhetoric.

In Australia, the Labor Treasurer Chalmers hands down his 3rd budget. The summary to data suggests that it will be a typical Labor Budget with more spending and tax cuts on the way. The treasure has “ear” marked this support, relieving the cost-of-living crisis however, said another way is there will be a lot more money in the system, and this in its own right could be viewed as a form of stimulus. Stimulus in an economy the RBA is trying to reel in and hinted that rates have a greater propensity to rise than fall. The Australian Bureau of Statistics is scheduled to drop the March quarter wage price index on Wednesday and the April labour force report on Thursday. Wages have grown strongly due to a tight labour market and robust public sector pay decisions, lifting 0.9% in the December quarter and 4.2% for the year. For the March quarter, it is pinned at another 1% rise, keeping the annual pace flat at 4.2%. If it comes in at 1%, it will be the 13th increase in a row. Although the April jobs data from the statistics bureau will follow March’s unemployment rate ticking higher to 3.8%, from 3.7% in February and slightly negative, we see the RBA wincing at expectations of wage growth continuing and the expectations of unwanted stimulus caused by the budget.  The outlook for more rate hikes will be confirmed and should negatively spin the equity market. 

On the data front, it’s a big week in the US. Traders will closely monitor key economic indicators, including inflation, producer price, and retail sales data, alongside speeches by several Fed officials. Significant releases also include data on industrial production, import and export prices, as well as housing starts and building permits. Additionally, attention will be on earnings reports from major corporations such as Home Depot, Cisco, Walmart, Deere & Company, and Applied Materials. China's economic performance will be in focus with the release of data on industrial production, retail sales, fixed asset investments, the house price index, and the unemployment rate for April. Tuesday evening in Australia, we get the budget. However, most have been leaked.

On the position front, we remain … in the S+P ( … , … ), so the positions are still in the money. If we get a daily close above US… , we will review it. We are … at … in the ASX and have added at ... We are still … USD/JPY at … and at ... In the other currencies, we reduced the AUD/USD and AUD/CHF with profits and looking to add to positions. Currently … , we are holding in the AUD/USD (…) and AUS/CHF (…); we have just entered new positions in Gold (…) and two positions in Silver (US… and …).

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Fundamentals:

ASX 200: We have bearish the ASX 200 for some time, holding onto …

Technical Analysis:

The record high for the ASX is around 7900. We are currently trading at 7735. If going …

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