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North Korea nixes talks

North Korea nixes talks


North Korea suspends high-level talks with Seoul. The 10-year U.S. Treasury yield jumps past 3.09 percent. And China’s trade delegation arrives in Washington. Here are some of the things people in markets are talking about.

North Korea Nixes Talks

North Korea said it’s suspending “high-level” talks with South Korea scheduled for Wednesdayover military drills Seoul has scheduled with the U.S., while cautioning Washington to “consider the fate” of next month’s summit between Kim Jong Un and Donald Trump “carefully.” The statement announcing the suspension came from KCNA, North Korea’s state-run news agency. It wasn’t immediately clear whether the move indicated a breakdown in broader talks between Pyongyang and Seoul, which have intensified following a recent face-to-face meeting between Kim and his counterpart, South Korean President Moon Jae-in. State Department spokeswoman Heather Nauert said planning for the Trump-Kim summit continues and that the U.S. hasn’t received any notification about potential hurdles.

Treasuries Tumble

The U.S. Treasury 10-year yield jumped to the highest since 2011, briefly rising above 3.09 percent after solid U.S. retail sales data with a strong upward revision to the prior month fueled bets that the Federal Reserve will boost interest rates three more times in 2018. On top of Fed tightening, Treasuries have come under siege from a flood of new issuance as the nation’s budget deficits widen. And inflation expectations are hovering near the highest since 2014, after years of doubts about whether prices and wages would increase. The dollar rallied and stocks fell. And for the first time in a decade, cash is competitive.

Liu He’s Return to Washington

Liu He’s arrival in Washington this week puts the Harvard-educated technocrat back in the spotlight that he’s frequented since his rise to China’s highest political body last year.  President Xi Jinping’s top economic adviser will spend four days in the U.S. for trade talks  with Treasury Secretary Steven Mnuchin, his second visit this year. An earlier round of talks this month in Beijing ended in discord. The outlook for avoiding a costly trade war between the world’s two biggest economies looked grim after those engagements failed to make progress, but brightened after President Donald Trump’s shock reversal of a ban on China’s ZTE Corp. accessing American technology. Beijing praised the switch.

Malaysia’s Leadership Saga

Jailed Malaysian politician Anwar Ibrahim is expected to be freed Wednesday after the alliance he jointly leads pulled off a surprise election win last week, although it’s increasingly unlikely that he will take over as premier anytime soon, as Mahathir Mohamad said he may stay on as Malaysia’s prime minister for “one or two years.” In remarks on Tuesday, the 92-year-old said that Anwar — a former enemy turned ally — may just join the cabinet for a while after his release. Mahathir also said he may soon bring a case against former Prime Minister Najib Razak, and took a shot at currency traders.

Coming Up…

Asia’s traders will be eager to find out how Mr. He is doing in Washington as Wednesday gets rolling. Also on the radar is Japan’s economy, with the government expected to report GDP contracted for the first time since 2015 in 1Q. And South Korean investors may be hoping that economists are right to forecast that unemployment fell back from the highest since 2010. We also get Australian consumer confidence and wages, along with China housing prices and a Thailand rates decision. There’s also the Bloomberg Invest event in Sydney that will examine the future for those managing Australia’s $2 trillion-plus pool of retirement savings. Speakers from J.P. Morgan Asset Management, Energy Australia, Vanguard, Pimco and Macquarie Group are among the headliners.

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

And finally, here’s what David’s interested in this morning

So I was at my dentist a couple of weeks ago to have a molar ache looked at. The good doctor had a poke around. He then leaned back, did that thing where you inhale air loudly through your teeth (which typically means they’re about to disappoint you). And then he asked how high my tolerance for pain was. First, in that kind of situation, is there really any other answer apart from “very low?” Second, you know things are about to go downhill very quickly. It’s the same situation for Indian bonds. The stars are really lining up for a possible rate hike in June. Nomura said yesterday it’s only a matter of time before Indian 10-year yields hit 8 percent. Oil prices are the issue, and they have been since mid-March. The more prices move up, the more exponential the impact becomes. April’s ugly inflation report already showed the country’s sensitivity to expensive crude with the fuel and light component of the basket rising over 5 percent. Last month, global oil averaged around $70. This month’s average so far is at $76. If that average moves up to $78, we’d reach a level at which the central bank itself acknowledges inflation could get bumped up possibly by 30 basis points. The next Reserve Bank of India meeting is on June 6. So for the next three weeks, Indian bond holders are me in that dentist chair. Fun.

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