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A bit of risk appetite peeked back in the financial markets on a trade truce between the U.S. and China, as well as downplayed tightening forecasts.

U.S. equity indices closed in the green to start the week while bond yields were mixed. Canadian banks were closed for Victoria Day.

  • Italian coalition appointed Giuseppe Conte as PM
  • FOMC member Bostic: Inflation likely to run above 2% for a time
  • Bostic: U.S. economy on track to reaching Fed’s dual mandate
  • Bostic: U.S. close to full employment but wage growth tepid
  • Bostic: Two more rate hikes possible this year
  • FOMC member Kashkari: Still seeing slack in jobs market, wages haven’t picked up
  • Kashkari: Central bank shouldn’t move too fast in hiking rates
  • Fed official Harker: Economy progressing just fine
  • Harker: Sees two more hikes this year, possibly an additional one if inflation accelerates
  • Harker: Not much slack in labor market

Major Events/Reports:

More updates from Italy

Italy’s new coalition has appointed Giuseppe Conte as Prime Minister, for the approval of Italian President Sergio Mattarella of course.

Now Conte is perceived as a newbie in politics, as his work is mostly in research at some of the world’s top universities such as Cambridge University, the Sorbonne and New York University.

Conte also runs a law studio in Rome, but didn’t seem to play a big role when the coalition was being formed. This could mean more political uncertainty, fellas!

Nonetheless, speaking to the press after this nomination, The League leader Matteo Salvini assured that the European Commission shouldn’t worry about the direction of the Italian government. (cough, populism, cough)

However, he reiterated that they will put the country’s needs first, with the primary aim of reducing the national debt. Recall that this coalition government has proposed billions of euros in tax cuts, higher welfare payments for the poor, and the scrapping pension reform.

Mixed remarks from Fed officials

A handful of U.S. central bankers, two of which are voting members of the FOMC this year, delivered speeches that reflected their economic outlook and policy bias.

For Atlanta Fed President Bostic, the U.S. economy remains on track to achieving the dual mandate of full employment and 2% inflation. However, he did admit that they might let inflation run past this target for a while.

He also acknowledged that even though the U.S. is close to full employment, wage growth remains tepid. In response to questions from the media, Bostic said that the amount of slack in the labor market is still an open question. Still, he mentioned that he expects two more rate hikes this year.

As for Minneapolis Fed head Kashkari, who has been one of the more dovish members of the bunch, the central bank shouldn’t move too fast in hiking rates. He reiterated that there’s still some slack in the labor market because wages aren’t picking up.

Fed official Harker, on the other hand, was a bit more chipper in saying that the economy is progressing just fine and that there’s not much slack in the jobs market.

Harker also estimated that inflation could even reach 2.5% and that he would back three interest rate hikes this year if price pressures keep accelerating. Unfortunately for dollar bulls, Harker isn’t a voting member.

Signs of risk appetite

Wall Street was in a pretty good mood as investors reacted to the trade truce between the U.S. and China earlier on.

  • Dow 30 index is up 298.20 points to 25,013.29 (+1.21%)
  • S&P 500 index is up 20.04 points to 2,733.01 (+0.74%)
  • Nasdaq is up 39.70 points to 7,394.04 (+0.54%)

Commodities were also in the green, with Black Crack drawing support from oil output worries in Venezuela. Note that Trump signed an executive order restricting the country’s ability to liquidate state assets, which could restrict production activity.

  • Gold ticked up $0.57 to $1293.18 per troy ounce (+0.04%)
  • WTI crude oil advanced $1.30 to $72.5 per barrel (+1.82%)

U.S. bond yields, however, were mixed:

  • 5-year yield is up to 2.893%
  • 10-year yield was unchanged at 3.0559%
  • 30-year yield rose to 3.199%

Major Market Mover(s):

USD

The Greenback continued to retreat for the most part of the session as risk-taking and the lack of stronger gains in bond yields dragged it down.

USD/JPY fell from 111.27 to a low of 110.94, USD/CHF is down from parity to .9968, EUR/USD pulled up from 1.1747 to 1.1792, and AUD/USD is up from .7530 to .7586.

AUD

The higher-yielding Aussie held on to most of its gains as the positive sentiment that followed putting U.S.-China trade tensions on hold lifted commodities.

AUD/JPY rose from 83.78 to 84.18, EUR/AUD dipped to the 1.5550 minor psychological level, GBP/AUD slid to the 1.7700 levels, and AUD/CAD is up to .9690.

Watch Out For:

  • 5:00 am GMT: BOJ core CPI y/y (dip from 0.7% to 0.6% expected)