Article Highlights

  • U.S. stock indices slightly lower, 10-year bond yields up
  • Fed official Kaplan: Too early to assess Trump’s effect on growth
  • Kaplan: U.S. economy should not rely solely on monetary policy
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Risk rallies and USD gains were more subdued lately as market watchers seem to be waiting for a fresh round of catalysts.

Major Events:

Fed official Kaplan’s testimony – Dallas Fed President Kaplan ain’t exactly a voting member on the FOMC this year, but it’s worth keeping tabs on his biases because he’ll be one of the decision-makers by 2017. In his testimony, he noted that it’s still too early to assess incoming U.S. President Trump’s effect on growth.

He added that markets seem to be expecting a lot of fiscal stimulus to complement monetary policy, explaining that the U.S. economy shouldn’t solely rely on the latter for growth. He did acknowledge the sharp rise in bond yields these days but assured that this won’t stop the Fed from hiking rates if necessary. In fact, he mentioned that higher long-term yields would give the central bank more room to maneuver.

Weaker risk appetite? – U.S. equities seem to be exhausted from rallying in the past few days, as the S&P 500 index retreated by 0.25 points to 2,164.20 (-0.01%) and the Nasdaq closed 18.72 points lower to 5,218.40 (-0.36%). Meanwhile, the Dow 30 index continued its ascent as it rose 21.03 points to 18,868.69 (+0.11%), boosted mostly by banking stocks.

Yields on 10-year Treasury notes jumped to 2.302% while 30-year bond yields moved past 3.06% – their highest levels since December. Investors continue to price in the potential impact of Trump’s campaign promises, which include higher infrastructure spending, lower corporate taxes, healthcare overhaul, and bank deregulation.

Major Market Movers:

EUR – The euro was the biggest loser for the day, weighed down by speculations that the upcoming Italian referendum could also result in ‘Italeave’ or an exit from the region.

EUR/USD slipped from 1.0785 to a low of 1.0708, EUR/JPY retreated from 116.30 to 116.00 but bounced right back to 116.20, EUR/AUD is down from 1.4296 to a low of 1.4202, and EUR/NZD fell from 1.5211 to 1.5051.


Watch Out For:

  • 12:30 am GMT: RBA meeting minutes

See also:

London Session Recap

Asian Session Recap

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