Funda-FX wrap: markets shrugged off trade war risks

Competing macro themes were creating crosscurrents throughout Financial markets on Monday. In Italy, the political crisis seems to have been averted, for the time being at least,
 with the swearing-in of a new government on Friday; (Italian stocks had climbed during Monday’s session, while the nation's blue-chip benchmark turned lower. Italy’s 2-year bond yield dropped 32 basis points to 0.67% on Monday).

However, after just two weeks ago, when Treasury Secretary Steven Mnuchin declared that the trade war was "on hold," setting off a celebration on Wall Street, the weekend's trade talks between the U.S. and China did not get us anywhere further away from a cold war about to turn hot between the two largest economies. The market recovered last week from such angst but barely flinched on Monday. 

Instead the markets have taken the bullishness out of the nonfarm payrolls surprise report and recent upbeat assessments of the US economy in the Beige Book and Atlanta Fed, even while Trump threatened global trade peace like no American president in modern history last week when the White House went ahead with levies of tariffs on $50 billion of goods from China. Also, the Talks to renegotiate NAFTA have stalled and Trump went ahead and imposed tariffs on its allies in Canada, Mexico and the European Union sparking the drums of a trade war with retaliation on the cards. Indeed, Canadian Prime Minister Justin Trudeau called it an "affront," and prepared retaliatory tariffs that will match the United States' dollar-for-dollar. Mexico announced it would place tariffs on American exports and the European Union has accused Trump of "pure protectionism" and readied tariffs on dozens of other American products, including bourbon and motorcycles. Meanwhile, however, six of the Group of Seven industrialized nations have issued a rare condemnation of the seventh member, the U.S., over its trade policy. All in all, it should make for an interesting  G-7 that is scheduled to take place in Quebec later this week. Elsewhere, the key data event for day came with the Aril US factory orders. These were weaker than expectations arriving at -0.8% vs -0.5% expected. while prior was revised down to -1.6% vs -1.7%. 

The US stocks

• Nasdaq rose 0.69%
• S&P rose 0.45%
• Dow rose 0.72%

US yields

• 2 year rose 4.4 bps to 2.5161%
• 10 year rose 4.0 bps to 2.942%
• 30 year rose 3.2 bps to 3.083%

Key headlines:

• Canada’s PM Trudeau: We are going to stand up for our workers - Reuters
• Brexit withdrawal bill to return to House of Commons on June 12 - The Times
• ISM NY: Business Conditions index improves to 66.9 in May from 64.3 in April
• EU's Malmstrom: Looking into safeguards of steel and aluminum, first measures could come in July
• ECB Spokesman: German bond redemptions were high in April, had to be spread to May
• US: New orders for manufactured goods in Apr decreased $4.0 bln or 0.8%
• US President Trump: Canada has all sorts of trade barriers on our Agricultural products
• BoJ's Sakuari: Japan's economy is likely to continue its moderate expansion