(07 JUNE 2019)DAILY MARKET BRIEF 2:Yen reversing amid potential tariffs delay

Things are rather looking good for this week closure. Financial markets are set to end the week in positive territory after multi-week losses while JPY eases at rumors of a provisory resolution in US – Mexican trade discord and risk of a recession following Japanese Cabinet Office assessment of the Japanese economy.

Mexican Foreign Minister Macelo Ebrard proposal to send 6’000 Members of the National Guard to secure the border and the recent procedure triggered by ruling Andres Manuel Lopez Obrador to uproot existing smuggler network appears to satisfy somewhat US authorities. Talks should continue on Friday while the final call should be on Sunday. The releases in Japan are yet not so promising. Although the Japanese economy shows signs of recovery as shown by April household spending up 1.30% (prior: 2.10; consensus: 2.60%) and maintained positive for the fifth consecutive period or April Coincident Index, which assesses business conditions in the economy, points at 101.9 (prior: 99.4), risk of recession is palpable. The Cabinet Office cut its economic assessment headline for the first time in over six years towards “worsening” from “weakening” in early January, as the increase in government consumption tax from 8% to 10% is scheduled for October 2019 while China’s economic slowdown weighs on production and exports. Speculations are even considering that the BoJ is set for further rate cut from current -0.10% to -0.30% during its 19 September 2019 meeting. The reason for the potential decision is notably due to a deterioration in economic growth and a weakening of inflationary pressures, partly due to a stronger yen, as well as to prevent a narrowing of the interest rate differential between the Fed and the BoJ following a Fed cut that could occur one day before. In this context, a status quo for the BoJ following the Fed's decision to cut rate could should strengthen JPY. For now, we assume JPY should stay in demand as US President Donald Trump will decide later this month whether he is ready to impose tariffs on an additional $300 billion for Chinese products.