Trade war on hold!


Happy Monday all! US treasury yields were a big highlight of last week.

Latest Rates
1.1436 1.7852 1.7273 1.3412
149.37 10.5338 17.2347 1.1731 0.8742
Investec currency forecasts as at 1 May 2018
Q2'18 Q3'18 Q4'18 Q1'18
GBP/USD 1.38 1.39 1.40 1.41
GBP/EUR 1.14 1.15 1.15 1.14
No major data releases
Key Levels
1.3300 1.3458
1.1300 1.1600

Market overview

Happy Monday all! US treasury yields were a big highlight of last week. The US 10 year reached as high as 3.11%, the highest since 2011. It seems like the 3.00% mark has truly broken now and some financial institutions such as Pimco are now calling for it to reach the 3.5% mark by the end of 2018. These levels are still fairly far away but if we do get there then we could well see a stronger dollar for 2018. Last week we saw the yield on 3-month US government securities surpass the dividend yield of the S&P500 for the first time since the global financial crisis, providing investors an incentive to rotate out of stocks. We have the latest US FOMC minutes on Wednesday where investors will be reading very carefully for any mention of inflation. A dovish tone will may see US yields pull back and similarly a more hawkish tone could be a catalyst for further upside in US Treasury yields. Fed fund futures are now pricing in a roughly 45% chance of the Fed Funds Target range standing at 2.25-2.50% by the end of the year, it currently stands at 1.50-1.75%.

After five days of intense negotiations between top American and Chinese economic officials, there is positive news that the prospect of a global trade war is on hold. “We’re putting the trade war on hold,” Treasury Secretary Steven Mnuchin said Sunday. “Right now, we have agreed to put the tariffs on hold while we execute the framework.” While details are vague, we know that Beijing pledged to "significantly increase" its purchases of US goods and services in an effort to reduce the circa $350 billion a year trade deficit the US has with China. JPY dropped against all its G-10 peers as optimism about easing trade friction bolstered Asian stocks and reduced demand for safe-haven assets. Commodity-linked currencies also benefited from this news.

The day ahead

Looking at the week ahead, Italy’s anti-immigration League and the Five Star Movement are set to propose a cabinet to President Sergio Mattarella as early as today with Florence University law Professor Giuseppe Conte emerging as a possible Premier. In terms of data there are a few key releases out in the UK starting with the inflation release on Wednesday. Consensus is for a 2.5% yoy figure, any divergence from this could see a move in the Pound. We also have UK Retail sales and the second estimate of GDP out in the UK on Thursday and Friday. Members of the Bank of England’s MPC, including Governor Carney will be appearing before the Treasury Select Committee tomorrow. Meanwhile Fed chair Jerome Powell and BoE Mark Carney will participate in a panel discussion on financial stability and transparency at a conference hosted by Sweden's central bank in Stockholm.

Thought of the day

Well what can one say? That was an incredible Royal Wedding - the Royals certainly know how to do pageantry! Britain officially has a new People’s Princess and the nation were able to celebrate the big day with the happy couple in glorious sunshine! It was a historic day and indeed a fairy tale. Here are a few facts about the wedding – 600 invitations were sent, 200 guests were invited to the private reception, 2640 members of the public were invited to the Windsor Castle grounds, 140 Royal Borough Ambassadors volunteered to steward the event and assist visitors on the day, 160 royal ‘stalkers’ were identified by the special Met Police Unit and over 100,000 people lined the streets outside of Windsor Castle. Meghan also took a page out of Kate Middleton’s book – reportedly not having a make-up artist, just like Kate didn’t for hers in 2011. Instead she had two of her close friends help her out. All of us on the Investec Treasury desk would like to wish the happy couple all the very best in their married lives together. We’d also like to wish one of our own, Lewis Thorn, the very best as he heads off to France tomorrow to tie the knot too!

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