Market wrap: market nerves weighed on yields and risk - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"London/NY trade focused on a rapidly shifting narrative over the proposed Trump-Kim summit in Singapore and new concerns in Spain, where PM Rajoy is under pressure after convictions for corruption of members of his party. Spanish 10 year bond yields jumped 7bp and Spanish equities closed -1.7%. Nerves otherwise weighed on yields and many commodities such as iron ore and copper. Crude oil fell 3%-4% after supply comments from Saudi Arabia and Russia.

The US 10yr treasury yield fell from 2.99% to 2.92% - a three-week low - while 2yr yields fell from 2.52% to 2.47%. Fed fund futures yields slipped a little further, but still predict a rate hike in June, with another by year end. Fed comments came from Chair Powell, who promoted transparency, but added that forward guidance may have a smaller role in future; and Kaplan, who said normalizing rates gradually is appropriate.

Italian politics remains very fluid. On Friday, Italy’s 10yr bond yield rose to 2.56% - an 85bp rise since early May. But there was a flicker of optimism at Monday’s open as the Italian president rejected the proposed finance minister for being anti-euro. New elections could be needed, which would be preferable for many investors. EUR/USD had fallen as low as 1.1646 Friday, a low since November 2017, but pushed above 1.1680 at Monday’sopen.

USD/JPY rose to 109.80 early Monday, perhaps helped by indications that the Trump-Kim summit would take place after all. AUD followed the broad moves of EUR in Friday trade, slipping to 0.7543 and isn’t much higher early Monday. NZD is net little changed, around 0.6920. AUD/NZD initially made a fresh four-month high at 1.0962, but later fell to 1.0910.

Data had limited impact. US durable goods orders fell 1.7% in April (vs -1.3% expected). While orders disappointed, shipments were firm, with core capital goods shipments +0.8% (vs +0.4% expected) - a solid start to Q2 that will solidify expectations for a large Q2 GDP rebound. Core orders rose 1.0% (vs 0.7% expected) but there was a -0.5ppt revision to March which took the shine off.

German IFO business confidence held steady (unchanged at 102.2, vs. 102.0 expected). Although avoiding the recent trend of Eurozone data undershooting expectations, the declining trend from end-2017 strength persists. UK 1Q GDP was unrevised at +0.1%q/q. Household spending remains subdued."