Global equities have been rising since Friday, with Asian stocks climbing to 2 ½ weeks highs overnight, on the back of Friday’s strong US employment report. The resultant risk-on sentiment prompted USD and JPY to weaken against most major peers.
AUD was the notable outperformer overnight after stronger-than-expected retail sales.
Concerns about Italian politics, the main market driver last week, have eased after 5SM and Lega were able to form a government after handing the sensitive role of Finance Minister to Giovanni Tria. Italian government bond yields saw unprecedented volatility and, despite a sharp rally, ended the week 20-50bp wider across the curve.
EUR recovered partially at the end of last week, driven both by easing political uncertainties, and also by month-end rebalancing and higher euro area inflation.
US non-farm Payrolls surprised slightly to the upside on Friday, increasing 223k in May. This week’s focus will likely move away from data and turn to US trade policy and geopolitics; negotiations with China continue and the US is expected to announce the final list of tariffs by 15 June.
In Spain, Prime Minister Rajoy lost a vote of no-confidence and was forced to step down. A PSOE minority government headed by Pedro Sanchez has taken control of Spain, but is unlikely to gain sufficient support to pass the draft 2019 Fiscal Budget. For this and other reasons, we think snap elections are likely this year.
That said, the latest CIS poll suggests the outcome of snap elections would be a majority, centrist coalition that would be more conducive to reform than the previous minority government.