Julius Baer: Comentarios China | Bonos EE.UU.| Brasil | Cobre

Redacción - Viernes, 08 de Junio

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China: Trade surplus with US increased This morning, China’s trade data for May surprised to the upside. Yearly export growth was almost as strong as last month at 21.6%, while imports surged even higher by 26% compared to last year. While the latter was due to higher commodity prices, the former was likely also boosted by higher demand from the US before a possible introduction of US tariffs on Chinese imports. Trade negotiations between China and the US have stalled, and the US announced to introduce a 25% tariff after the publication of a definite list of the USD50bn of Chinese products by 15 June.

Trade data remained strong in May and suggests that China’s overall stable economic momentum will be maintained in the third quarter. We do not see the introduction of tariffs on USD50bn worth of Chinese imports as a trade war yet, as the economic effects will be small and have only minor effects on overall growth. Regardless of such a development from 15 June, we expect Chinese growth to moderate mildly in the second half of the year due to ongoing reforms.

 

Susan Joho, Economist, Julius Baer

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US government bonds: Say hello to more volatility

 

Both the level and the volatility of bond yields are set to rise – this is one of the main theses of the Research Outlook Q3 we have published this week. In fact, the yield of the benchmark 10-year Treasury note fluctuated in a range of 8 basis points yesterday to close at 2.91%. On the one hand, we see the strength of the incoming US data that pushed bond yields up; on the other hand, the turmoil on the emerging bond markets trigger a flow into safe core government bonds. We expect volatility to remain high or even to increase as central banks are in the process of scaling back their support for the bond markets.

 

We maintain our defensive stance on bond markets as investors are not adequately compensated for the imminent increase in bond yield volatility. Money market instruments and Treasury inflation protected securities remain our preferred instruments for USD investors.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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Brazil steps up efforts to defend the currency

 

In a surprise conference call yesterday, Brazil’s central bank president tried to bring calm to the market by highlighting their commitment to continue to defend the Brazilian real (BRL) with swaps. He also said that the central bank would consider using its massive USD380bn reserves to provide liquidity to the foreign exchange market. The pressure on the BRL (-18% since the start of the year) comes on the back of concerns of a slowdown in the economy following the generalised truckers strike that paralised the country only a few days ago. Investors also fear the return of populist measures given the uncertainty about the presidential elections in October. In our view, many of these concerns are overdone as the majority of presidential candidates understand the need to address the fiscal imbalances of Brazil. On the economic front, we note that Brazil is in a much better position that countries such as Argentina or Turkey given its very small current account deficit, large international reserves and limited hard-currency indebtedness at government level.

 

We see the concerns around Brazil as overdone. The country is in a much better economic and financial shape than Argentina or Turkey, countries that have recently suffered large currency depreciations. We expect pressure on the Brazilian real to abate in the coming days.

 

Alejandro Hardziej, Fixed Income Analyst, Julius Baer

 

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Copper feels the summer heat

 

It seems as if metal markets are feeling the early-summer heat. Prices have surged across the board since the beginning of June with copper taking the lead following its advance to multi-year highs. Support came from different directions. Metal markets profited from the more general risk-on mood in recent days. Copper prices surged beyond some technically important levels, which likely accelerated the up move. The US dollar softened, which usual-ly brings tailwinds for most commodities and in particular the metals segment. Moreover, the lack of progress in wage talks raised concerns about supply disruptions from one of Chile’s most important copper mines. However, we believe this support is largely temporary. The US dollar should see further strength in the near term on the back of rising interest rates. The wage talks inject some production risks but the copper market looks well supplied not least thanks to ample inventories at exchanges. The global economy is humming indeed and supports demand, but the focus should be on China’s ‘old economy’, where, on the back of the structural shift from investment to consumption, the growth outlook is softening rather than strengthening. Chinese trade data published today contain little surprises and largely mirror the solid global economic backdrop. Surging Chinese aluminium exports show the markets ability to reorganise flows in response to trade restrictions.

 

The risk-on mood, US dollar weakness and supply fears have pushed copper prices to multi-year highs. However, we see this support as temporary not least since the market remains amply supplied. The global economy is humming indeed, but the focus should be on China and the slowdown in its ‘old economy’. We stick to our bearish view and short position in copper.

 

Norbert Rücker, Head Macro & Commodity Research, Julius Baer

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