Interesting points to note this week :
Brent below 50 dollars, lowest since November 2016. The collapse happens with rising bond yields, which is a rare thing to see. However, inflation breakevens are lower which means markets are rational.
American economic data was in line with expectations :
- Manufacturing ISM was below expectations, while service ISM was above
- Employment report showed an outstanding 4.4% unemployment rate (lowest since 2007) but large disappointment on average weekly earnings (+2.5% year over year, lowest since early 2016). Fed gets comfort in its gradual hike strategy
FOMC was pretty dull. Fed deems Q1 GDP weakness as transitory. Market prices a full hike of 25 bps for next meeting in June.
Significant compression in periphery bond spreads: Portugal -25 bps, Italy -20 bps, Spain -18 bps. Political risk in Eurozone gets revised down markedly.
Euro area equities, and particularly banks, outperformed.
This "risk on" tone was observed as well on foreign exchange markets with JPY much lower. We keep this trade on, we have the position since last week after the elections.