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Political uncertainty in Spain and Italy continued to weigh on the euro. Although the euro did eventually find support when the 5-Star Movement’s Di Maio noted in a Facebook post that the would-be coalition government had no plans to exit the euro and was willing to work with other E.U. Member States. Even so, the damage was done and the euro was the worst-performing currency of the session.

The yen, meanwhile, was propelled to the top, thanks to the intense risk-off vibes caused by all that political uncertainty.

  • Swiss trade balance: CHF 2.29B vs. CHF 2.23B expected, CHF 1.69B previous
  • Euro Zone money supply y/y: 3.9% as expected, 3.7% previous
  • Euro Zone private loans y/y: 2.9% vs. 3.2% expected, 2.9% previous

Major Events/Reports:

Luigi Di Maio posts (in Facebook)

Luigi di Maio, the leader of the 5-Start Movement, posted the following message on Facebook earlier.

Lo spread oggi è schizzato oltre i 300 punti: non accadeva da 4 anni. Il problema non eravamo noi, non era la nostra…

Posted by Luigi Di Maio on Tuesday, May 29, 2018

The most important part is this bit (emphasis mine):

“Se il Governo del Cambiamento fosse partito, oggi avremmo un governo politico forte che sarebbe già al lavoro per incontrare gli altri Paesi Ue e spiegargli i dettagli della nostra politica economica che non ha mai previsto l’uscita dall’euro.”

And we get the following English translation, courtesy of Google Translate (emphasis mine):

“If the Government of Change had left, today we would have a strong political government that would already be working to meet the other EU countries and explain to them the details of our economic policy that has never foreseen the exit from the euro.”

Trump tweets

U.S. President Trump was up early and busy tweeting. And aside from lambasting his political opponents, Trump had this good news to share with regard to denuclearization talks with North Korea.

More risk aversion in Europe

Risk aversion continued to ravage the major European equity indices, resulting in another bloodbath.

And like yesterday, Italian and Spanish stocks were getting the worst of it.

And also like yesterday, market analysts blamed the risk-off vibes on political uncertainty, particularly the possibility of fresh elections in Italy since the current narrative is that fresh Italian elections will be seen as a proxy referendum for Italy’s membership in the E.U. (i.e. an Italian version of Brexit).

  • The pan-European FTSEurofirst 300 was down by 1.40% to 1,504.03
  • Germany’s DAX was down by 1.36% to 12,688.31
  • The blue-chip Euro Stoxx 50 was down by 1.80% to 3,425.45

The intense risk-off vibes in Europe also dragged U.S. equity futures lower.

  • S&P 500 futures were down by 0.74% to 2,698.25
  • Nasdaq futures were down by 0.57% to 6,920.75

Global bond yields plunge

Global bond yields were down hard today, very likely because of safe-haven demand for bonds because of the political situation in Italy and Spain.

  • German 10-year bond yield down by 17.25% to 0.283%
  • French 10-year bond yield down by 1.14% to 0.688%
  • U.K. 10-year bond yield down by 8.08% to 1.217%
  • U.S. 10-year bond yield down by 2.60% to 2.859%
  • Canadian 10-year bond yield down by 1.95% to 2.260%

Major Market Mover(s):

EUR

The euro got another beating during today’s morning London session. There were no direct catalysts but the euro’s weakness was blamed on political uncertainty in Italy and, to a lesser degree, Spain.

Interestingly enough, the euro began to find support after Luigi di Maio’s Facebook post that the would-be coalition government had no plans to exit the euro. It remains to be seen if support will hold, though.

EUR/USD was down by 49 pips (-0.35%) to 1.1554, EUR/AUD was down by 34 pips (-0.22%) to 1.5353, EUR/GBP was down by 14 pips (-0.16%) to 0.87178

JPY

Another risk-off session and falling bond yields meant another great session for the safe-haven yen. The yen was not just the top dog of the session, though, since the yen is also currently the top-performing currency of the day.

USD/JPY was down by 21 pips (-0.19%) to 108.86, GBP/JPY was down by 53 pips (-0.37%) to 144.36, EUR/JPY was down by 54 pips (-0.43%) to 125.8

Watch Out For:

  • 1:00 pm GMT: S&P Case-Shiller HPI (6.5% expected vs. 6.8% previous)
  • 2:00 pm GMT: CB’s U.S. consumer confidence (128.0 expected vs. 128.7 previous)
  • 9:00 pm GMT: RBNZ’s financial stability report