ON DECK FOR MONDAY, JUNE 2
KEY POINTS:
- June begins with risk-off sentiment
- Trump slams steel and aluminum buyers
- EU, Canada threaten retaliation
- China accuses US of cheating, threatens retaliation
- China PMIs edge up
- Oil rallies as OPEC+ hikes output by less than feared
- Peru’s inflation holds steady
- US ISM-mfrg and construction spending on tap
- Global Week Ahead—Break it Twice (reminder here)
June is off to a bit of a rocky start in the markets. Stocks are broadly lower, but gently so. Ditto for bond prices. Oil is up by about 4% after the weekend OPEC+ decision hiked July’s output by a less-than-feared 411kbpd. The dollar is broadly lower.
NEGATIVE TRADE DEVELOPMENTS
The main risk-off catalyst is pessimism toward trade policy developments. Trump announced after Friday’s close that he would double tariffs on steel and aluminum to 50% effective on Wednesday. He did so at a rally at US Steel—a prime beneficiary of protectionism as the effects are borne by US consumers and other US businesses. Aluminum is especially mindboggling because of the high pass-through risk of tariffs into prices given the dominance of imports particularly from Canada. Charts 1 and 2 show US imports of both metals by country. All of this assumes Taco-man doesn’t backpedal.
In response, the EU said on Saturday that it was prepared to retaliate against the steel and aluminum tariffs. So did Canada.
China responded to US allegations that it is cheating on its trade agreement by accusing the US of violating the agreement by applying tighter controls on AI chips and related activities plus the cancellation of Chinese student visas. China is vowing to retaliate. All of this follow’s Bessent’s remarks last week that US-China trade talks had stalled.
WEEKEND DATA
Other weekend developments included China’s state PMIs that edged slightly higher, but not in any statistically significant way. The composite PMI was up two-tenths in May (50.4%) entirely due to a slightly slower contraction in manufacturing (49.5, 49.0 prior) as non-manufacturing held steady (50.3, 50.4 prior).
Peru’s inflation rate held steady in May (1.7% y/y) against expectations it might edge up.
US DATA ON TAP
US ISM-manufacturing and construction spending are both due out at 10amET. Slight improvements are expected in both gauges.
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