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APAC Morning Call 16.05.18

Snapshot of major markets and macro summary 

 

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Wall Street stall turns into a clear retreat: Through this past session, restraint turned into genuine loss. The S&P 500, Dow and Nasdaq(speculative favourite, blue chip stalwart and leveraged tech index) all gapped lower on the open and went on to lose further ground as the session wore on. The retreat highlights in US shares markets is not presenting as a wholesale risk aversion – as European and other regional equities weren’t party to it – but there was certainly a wider concern than just those found in the local markets. The US 10-year Treasury yield charged above 3 percent to a near 7-year high while the Dollar rallied and emerging market currencies suffered an intense retreat. Usually these factors align in monetary policy from the Fed – concern that ‘free money’ is being reined in and higher returns are to be found in foreign investment in the US – but it is too early and uneven to project a trend out of this theme.

 

Fed-speak continues with the regular calls and new voices: One of the more populous forms of scheduled event risk on the global economic docket this week is a steady flow of the scheduled speeches from Fed officials. While the odd remark from this group can spark volatility and a swing in the Dollar, there is a growing sense from the market that it already has the line on where all the members stand in the dovish-to-hawkish scale. This past session, San Francisco Fed President John Williams suggested three or four rate hikes in 2018 was still the appropriate pace – a familiar view from him and an offset to Bullard’s suggestion that hikes should be throttled with a threat of inverting the yield curve. New in this mix though were two nominees for open FOMC seats: Clarida and Bowman. Both played the standard track of supporting Fed independence, but there was also a hawkish lean to arise from their responses with a further clear scepticism about the effectiveness of QE. Two more hawks in permanent voters seats can significantly change the tempo of this key central bank.

 

Economic releases

 

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"The US indices started off this week with a clear sense of hesitation with extending the robust recovery forged last week." 

 

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