Four Things that Happened Monday You should Know About

While the markets in the United States and parts of Europe were closed on Monday there are four things that took place that global investors need to know.  

1.  Japan reported smaller than expected trade deficit in April owing to stronger exports and weaker imports.  The trade deficit of JPY53.4 bln was about one-seventh the size the consensus expected after a JPY227.4 bln surplus in March.  Exports rose 8%, which, while off the 8.5% year-over-year pace in March, was better than the 6% forecast. Imports fell 4.2% year-over-year.  The consensus had called for a 1% decline.  The rise in exports follows the BOJ indication last week that it has greater confidence in the economy, after it previously cut its forecast.  

2.  China announced that as of June 1 it would cut tariffs on a range of consumer goods in order to stimulate demand.  The import duty, for example, on Western-style clothing will be reduced to 7-10% from 14-23%.  The duty on ankle-high boost and sport shoes will be cut in half to 12%.  The tariff on skin care products will be cut to 2% from 5%.   If the tariff cuts spur domestic producers to cut prices as well, the risk is that it strengthens the deflationary forces that Chinese policy makers are fighting with the other hand. 

3.   Investors did not seem particularly worried about results of the regional and municipal elections in Spain that saw the two main parties, the center-right Popular Party and the center-left Socialists, draw 51.9% of the vote down from 65.3% in 2011.  The anti-austerity Podemos has shift a bit toward the center and captured the mayor's office of Madrid and Barcelona.  The charges of corruption against the two main political parties drew voters to the new centrist Ciuidadanos party. 

On one hand the success of Podemos will likely sap some of the strength of the Cataloninan independence movement.  On the other hand, Spanish politicians have little experience in forging coalitions which will result from the fragmented voting results.  National elections must be held by the end of year.  Based on these results, it is projected that of the 350-member parliament, the PP would get 120 seats, the Socialists 108, Podemos 37 and Ciuidadanos 15.  The remaining 70 seats would be split among 15 small parties.   Prime Minister Rajoy's campaign strategy has been based on being rewarded for the economic recovery that is underway.  Spain will likely be the fastest growth large European country this year, though it is achieving this growth with less than 4/5 of its workforce being employed.     

The Spanish stock market fell 2%.   Yet so did the Italian bourse.  Spain's 10-year benchmark yield slipped 1 bp as did Italy's.  The 2-year benchmark yield fell nearly 4 bp, while Italy's fell by a little more than two basis points.  

4.   Poland's Law and Justice candidate Duda defeated the incumbent Komorowski of the Civic Platform Party (51.5% to 48.5%) in the presidential run-off.  Duda is campaigned on a platform that called for increase benefits to families, reversing the increase in the retirement age, and increasing taxes on banks.  The Civic Platform Party has dominated Polish politics for the past eight years, but was not rewarded for the relatively favorable economic performance.   The economy grew by 3.5% in Q4 14, and Q1 GDP will be reported May 29.  Headline inflation is negative (-1.1% in April), though the core rate is slightly positive (0.4%).  A general election is expected in November.  

The local stock market lost about 1.5% and the euro, which slipped against the dollar, extended its six week uptrend against the zloty.  Poland's 10-year benchmark bond yield jumped 11 bp to 2.90%, a eight-month high.