Risk-on, for the moment
By Peter Rosenstreich
Risk appetite has improved globally: weaker US inflation (CPI 0.2% vs 0.3% expected) suggests the US Federal Reserve will not speed up its rate hikes. US equities rallied yesterday, with the S&P 500 trading above its 100-day moving average and 10-year treasuries below 3%. With the next Federal Reserve meeting a month away, the USD remains hearty versus emerging markets but weak in the G10. A sustained dollar correction is unrealistic: markets have yet to reprice US slowing growth and EU positive growth outlook. In commodity currencies, we remain positive on NOK and CAD (slightly less on AUD) against USD as oil rebounds.
Optimism grew on news that US President Trump might halt North Korea’s nuclear program at a summit planned for 12 June in Singapore. This is overshadowing middle-east tensions between Iran and Israel, and an imminent coalition of the anti-EU 5-Star party and a far-right counterpart to form an Italian government. Oil prices fell, because a drop in Iranian exports could be replaced by Saudi Arabian and US supplies.
Aussie up on tax cut
By Arnaud Masset
The Australian dollar was better bid on Friday morning as the USD rally ran out of steam and the Aussie government unveiled its income tax cut. AUS had rough Q1, but that was nothing compared to the debasement in the second half of April. The Aussie fell as much as 5.10%, sliding from $0.7813 to $0.7412, amid stalling inflation and weak retail sales. Still, traders hoped the tax cut would brighten the longer-term.
The tax plan would benefit mostly the rich, which will do little to boost consumer spending. It didn’t take long for the opposition leader, Bill Shorten, to promise to redress this inequality. This means unhappy taxpayers might vote opposition at the next election.