Analysts at ANZ noted the G7 meeting from the weekend and an alliance to fight protectionism.
"Some would argue the G7 is a far less relevant institution these days, but it didn’t stop the meeting of its respective country leaders in Italy over the weekend generating plenty of headlines.
And with this being the first G7 meeting for four of the seven leaders, more than anything the focus was on whether they would see eye-to-eye on various issues.
A joint statement was released, but reports are that it took plenty of work to get to that point, with reported disputes on trade and climate change especially.
On trade, there was a commitment to “keep our markets open and to fight protectionism”, but it was added that “trade has not always worked to the benefit of everyone. For that reason, we commit to adopting appropriate policies so that all firms and citizens can make the most of opportunities offered by the global economy.” In many ways, that sounds fair, it’s just that right now, we don’t really know what those “policies” will be."
Nomura's key takeaways from last week from the US ...
"Special Report: Trump-Russia affair dominates headlines, but impeachment remains unlikely Despite the recent cacophony of revelations around investigations into Russia’s involvement in the US election, we think the potential for President Trump to be impeached or removed from office remains very low. The appointment of Robert Mueller as a Special Counsel is significant and may boost the credibility of the investigation into Russia’s interference in last fall’s election and any connection to the Trump campaign. That said, Mueller’s investigation is likely to take time. Looking ahead, former FBI Director Comey has agreed to testify before the Senate Intelligence Committee sometime after Memorial Day (29 May). That testimony will likely garner much attention. Although politically momentous, we think the investigations and Trump’s possible removal from office would have a limited impact on the economic outlook.
Special Report: US Budget: Clouds Gathering on the Horizon Although the release of the Trump administration’s proposed FY 2018 budget will have little influence on the final spending package that will eventually pass Congress, it has provided some interesting insights, including details on an infrastructure plan and a desire to curtail federal government spending drastically on a variety of social programs. More important, the administration’s proposed budget highlights two important upcoming deadlines. First, a budget or continuing resolution must be passed by 30 September to keep the government operating beyond then. Second, a new debt ceiling limit or a debt ceiling suspension must be passed by the fall before “extraordinary measures” run their course.
Policy Watch: May FOMC Minutes Recap The minutes from the 2-3 May FOMC meeting reinforce our view that the FOMC will raise short-term interest rates in June. This hike will likely come despite recent soft inflation data, and likely be driven, in part, by continued strong performance in the labor market. The minutes also highlight further discussion of future balance sheet policy and noted that the Committee forged a consensus on its operational approach to reducing the balance sheet."
Analysts at Brown Brothers Harriman noted that the US 10-year Treasury yield appears range bound between 2.20% a 2.30%.
"Without stronger growth on a sustained basis (real rates) or upward pressure on prices (inflation premium), the impetus for significant movement may have to come from abroad.
The 10-year futures note fell sharply in H2 16 and has spent the first five months of 2017 consolidating those gains. It has not even met the 38.2% retracement (127-09).
A break of 125-24 warns that the bulls may be getting tired. Ahead of next week's US employment data which will likely be solid even if not spectacular report is expected, there may be some pressure to square up, which given the positioning, likely entails the liquidation of longs."
Analysts at Westpac's market wrap...
"Global market sentiment: US GDP data was not as weak as expected, helping arrest declines in US interest rates and the US dollar. The NZD was the best performer, GBP the worst.
Interest rates: US 10yr treasury yields fell from 2.26% to 2.23% before the US GDP data helped a rebound to 2.25%. 2yr yields firmed slightly from 1.28% to 1.30%. Fed fund futures yields were little changed, pricing a June rate hike as an 85% chance.
Currencies: The US dollar index closed 0.2% higher on the day. EUR fell from 1.1235 to 1.1160. Underperformer GBP fell from 1.2900 to 1.2776 – a one-month low – amid polls showing the Conservative party’s lead has narrowed significantly. USD/JPY bounced off 110.88 to 111.42. AUD bounced off 0.7422 to 0.7461. Outperformer NZD rose from 0.7010 to 0.7077. AUD/NZD extended a multi-month decline from 1.0585 to 1.0526 – the lowest level since Feb – amid a persistent decline in iron ore (fell 3.8% on Fri to $57.91 – the lowest level since Oct).
The weekly CFTC update showed US dollar index longs were pared further while EUR longs were increased to a 3 ½ year high. AUD longs and NZD shorts were both reduced. US 10yr treasury longs were increased to a ten-year high."
Data source: FX Street
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