Analysts at Westpac offered a market wrap.
Key Quotes:
“EUR/USD reacted positively in Sydney trade to Italian president Mattarella’s rejection of anti-euro economist Savona as the proposed finance minister in a coalition of the 5 Star and League parties. The president instead asked former IMF official Cottarelli to try to form a government, which would have been a market-friendly outcome. However, the leaders of 5 Star and League pledged to block Cottarelli in parliament and readied for fresh elections.”
“Italian shares closed down 2.1% while the Italian 10 year government bond yield jumped 22 basis points, causing some contagion in Spain (+6bp) and Portugal (+10bp) as German 10 year bund yields fell 6bp. EUR/USD had rallied from 1.1610 to above 1.1720 but then rolled over to 1.1625.”
“AUD/USD followed a similar path, peaking around 0.7580 then fading to 0.7545/50 by early Sydney trade, about flat on the day. NZD/USD managed a net gain however, up 0.25c overall to 0.6940, trimming AUD/NZD -0.4% over the day to 1.0870. USD/JPY gave up its Sydney morning gains to trade quietly around 109.40, flat overall.”
“The risk-averse mood weighed on US yields. Although the cash bond market was closed for the holiday, 10 year treasury note futures did trade and implied a further 5bp fall to below 2.90% – a three-week low.”
“Brent crude oil tested under $75/bbl, taking its 2 day decline to -4.4%. This helped take pressure off some struggling emerging market currencies including the Indian rupee, which rose 0.5%. The Turkish lira jumped 2.8% after hitting record lows last week.”
Event risk:
“Australia’s calendar is quiet again and indeed there is little of note in Asia.”
“US markets reopen from the Memorial Day long weekend with second tier data. We will see Mar house prices from S&P/Case-Shiller, May manufacturing sentiment survey from the Dallas Fed and perhaps of most market relevance, the Conference Board consumer confidence survey for May. In April the headline index was 128.7, very close to highs since 2000.”
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