US retreats on Huawei – IRS prepares to cryptos

Asia

The Australian dollar lost all of its post-election gains (a 6-week record) in one fell swoop after RBA Governor Philip Lowe affirmed interest rates could be cut in June, naming employment and inflation as the main culprits. In China, President Xi JingPing has reportedly visited one of the nation’s major rare earth plants, hinting that this export could be the next retaliatory measure against a trade-war bent United States. Rare earths are a major component in many computer components, alternative energy technologies, fuel cells and batteries, LCD and Plasma screens, fibre optics, lasers and medical imagery. They are also instrumental in advanced agricultural processes and more. China controls approximately 97% percent of the world’s rare earth resources.

Europe

Ahead of European Parliamentary elections later this week, the Euro has broken below the support at 1.1180 and equities are straddling the “0” line. With populist parties expected to strengthen their presence, and in light of a growing disenchantment with the Union, the Union’s principal voice on economic matters could be entering the stormy waters of global trade wars in a less-than-unified manner. Some buoyancy is being provided by news this morning that the US government was easing some restrictions on Chinese telecom giant, Huawei, reversing Google’s decision to prevent access to some Android components. Meanwhile, the British pound continues south as Parliament postpones BoE Carney’s testimony today, this in favour of today’s vote on Theresa may’s (probably) final attempt to lure legislators with a “new & improved” Brexit deal that addresses the Irish backstop, workers’ and environmental protection and a tighter customs union with the EU. Failure puts hardliner Boris Johnson in line for the Mayday throne.

US

US indexes are down this morning, the Nasdaq leading with a 1.46% loss as tech companies await the effect of US sanctions against Huawei and Chinese retaliation. Yesterday, Chicago’s Fed published its national activity index gauging overall economic activity. We find April in contractionary territory (-0.45) following the previous month’s positive 0.05. And following a FED report that corporate debt grew by 20% in 2018 to $1.2 trillion, Federal Reserve Chairman Jerome Powell told a Florida audience yesterday that growing corporate debt has not yet approached 2008 levels, but warrants monitoring. Leveraged lending, he said, could be a rerun of the subprime mortgage crisis or else “nothing to worry about”.

Commodities

After yesterday’s double bottom and ahead of today’s API report, oil broke through 63.50 this morning and is about to test 63.80 once again. Despite last week’s 8.6mB build, pressure on oil is northward, as the fallout from the China-US trade war threatens economic growth – strengthening OPEC+ resolve to tighten production even more at their weekend meeting.
Finally, Bitcoin seems to have defined a new band between $7750 and 8250, straddling the 8 mostly from below, this as the US Internal Revenue Service prepares a set of guidelines for administering crypto transactions. And in loosely related news, Amazon has received a patent for a Proof-of-work crypto system to help verify computer network service and DoS activities.

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