Japan Inflation Holds Steady, Core Rate Surges Past Forecasts

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3700-1.3940

Euro                 1.5530-1.5760

Sterling            1.8530-1.8750

WTI Oil (opening level) $60.85

The CAD/USD is opening at 1.3817 ( 0.7237 )

Headlines

·    Japan’s annual inflation rate remained at 3.6% in April 2025, unchanged for the second month, matching the lowest level since December. Core inflation rose to 3.5% from 3.2%, exceeding expectations and reaching the highest since January 2023.

·    Recent trade disputes and US tariffs may impact economic growth, but ECB officials expect disinflationary forces to dominate in the short term, aiding price stability. However, some warn that a prolonged trade war could lead to long-term inflationary effects by disrupting global supply chains.

·    Fed's Waller highlighted market concerns over fiscal policy, stating the Fed won't buy bonds in primary auctions. He noted the economy's strong performance with minimal tariff impact and suggested potential rate cuts later if tariffs ease and stay near 10%.

·    The S&P Global US Composite PMI rose to 52.1 in May from 50.6 in April, showing modest growth, the fastest since March but still weak historically. Business optimism improved slightly despite tariffs affecting demand, supply chains, and prices. Export orders fell, especially in services, and supply chain delays worsened.

·    US initial jobless claims decreased by 2,000 to 227,000 for the week ending May 17th, below the expected 230,000, indicating labour market strength despite high interest rates. Unemployment claims increased by 36,000 to 1,903,000, above the expected 1,890,000, reflecting challenges in finding employment.

·    US trade negotiators are pushing the EU to make unilateral tariff reductions on US goods or face “reciprocal” duties of 20% the FT reported. The US is unhappy that the EU only offered mutual tariff reductions rather than pledging to lower duties alone, while also excluding its digital tax as a point for negotiation.

·    Beijing and Washington continued high-level contact with a Thursday call between senior officials, a sign that the two sides are maintaining active communications following their trade truce earlier this month. Meanwhile Japan’s top trade negotiator is due in Washington today for a third round of trade talks, with the avoidance of levies on its key auto industry a major focus point.

Key Points

Equities: US flat; Europe/UK down; fiscal concerns; tech and crypto outperform; solar, autos fall

Volatility: VIX down; futures flat; long-dated call buying; SKEW up; options robust

Digital assets: BTC ATH; IBIT inflows; banks eye stablecoin; whale transfers; COIN, altcoins higher

Fixed Income: US long treasury yields tamed after another surge higher yesterday failed to hold.

Currencies: USD rally late yesterday was reversed overnight. NOK top performer this week among G10 currencies.

Commodities: Investment metals and grains the winners this week