Daily Market Color

Financial Markets Await Results of G-7, North Korea Summits


Stocks, Yields Climb Heading Into Weekend

Risk assets posted marginal gains in today’s low volume, summer Friday trading session.  All three major US stock indices were up between 0.1%-0.3%, led by the healthcare and consumer staples sectors, with gains of more than 1% for the week.  US Treasurys experienced a mild selloff in the second half of today’s trading session, with yields/swap rates increasing 1-3bps across the curve.  The 10-year note yield finished the week near 2.94%, roughly 4bps higher than Monday’s opening level and 18bps lower than the multi-year high (3.12%) recorded in the middle of May.  In commodities, WTI crude futures slipped 0.3% to $65.75/barrel while gold prices remained unchanged at $1,302/ounce.   



G-7 Meeting Commences

This afternoon kicked off the two-day meeting being held in Canada between the G-7 leaders, although President Trump preemptively left open the possibility of an early departure to prepare for his summit in North Korea.  Heading into the summit, Trump reinforced his confrontational stance that “We’re going to deal with the unfair trade practices. If you look at what Canada, and Mexico, the European Union – all of them – have been doing to us for many, many decades. We have to change it. And they understand it’s going to happen.”  European Commission President Jean-Claude Juncker expressed a counter point-of-view when he stated “the President of the United States thinks that the U.S. has been treated in an unfair way by Europe and by others, and the others think that this is not the case.”  Trump managed to further muddy the waters by suggesting that Russia should be allowed to re-enter the group – a belief that was not widely shared among the other members of the G-7.  Overall, progress at the meeting is expected to be limited as the “G6 plus 1” sentiment remains.  The US dollar inched 0.1% higher against major currencies heading into the weekend’s festivities. 



Next Week’s Central Bank Trio

Central bank meetings in three of the world’s largest economies (US, EU, JPY) will take place next week, beginning with the US Federal Reserve, which is widely expected to increase benchmark borrowing rates by a quarter point.  As per Fed fund futures, the current probability of a hike is greater than 80%, however financial markets will be more anxious to hear the words of Fed chair Jerome Powell in the press conference afterwards, specifically the FOMC’s views on the aggressiveness of monetary policy tightening going forward.  In Europe, it is expected that the ECB will hash out a plan to end its quantitative easing which has been in place for the last four years and currently includes 30 billion euros ($37 billion) worth of asset purchases per month.  However, the recent spike in political uncertainty throughout the euro zone (see Italy, Spain) may put a ceiling on the hawkishness of the forward looking guidance from the ECB.  The third major central bank meeting next week will be that of the Bank of Japan, where a combination of low inflation (0.7%) and contracting GDP will likely lead to a maintenance of the nation’s ultra-loose monetary policy (-0.1% benchmark, 0% 10-year JGB yield).


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