Last week saw UST yields rise 4.4bps, to touch 2.947%, whist Bunds increased 6.3bps, from 0.386% to 0.449%. Some of this move was a residual retracement of the flight to safety during the Italian one-day blowout but the relatively large move in European debt (Bund yields now more than 16% higher than where they were last week) was chiefly a result of a speech, from ECB Chief Economist, Peter Praet’s on their Asset Purchase Programme (APP) and breaking news that “Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases”. The market reacted to this news that the ECB is thinking about adjusting the unprecedented bond-buying programme which now exceeds €2.5 trillion: making the ECB owner of 26% of Dutch Debt, 25% of Bunds, 21% of Spanish debt, 18% of OATs and 15% of Italian BTPs.
Other highlights from last week include: Japan’s GDP contracting 0.6% ‘18Q1 in-line with forecasts and with few anticipating an impending recession as the soft results were partly attributable to poor weather and weak markets; Argentina reached an agreement with the International Monetary Fund (IMF) for a $50bn rescue loan – this largest ever credit line from the IMF should help this fallen sovereign angel address their dogged twin-deficits and plummeting peso (and ballooning international hard-currency debt that was snapped up last year); also Giuseppe Conte, Italy’s new PM, delivered a ‘proud to lead a populist government’ speech in his first parliamentary address; and lastly the sentiment of Trump along with the rest of the G7 has been immortalised in a (now viral) picture that speaks-a-thousand-words from the summit – showing smug and frustrated faces, arms crossed and the (sitting) President looking like a stubborn toddler being told-off by ‘Mutti’ Merkel.
“Fair trade is now to be called fool trade if it is not reciprocal,” said Trump during the summit. However after a meeting with French President Emmanuel Macron there were signs of progress for a US-EU deal, with Trump going into more detail than usual stating, "Something's going to happen. I think it will be very positive". Needless to say world-peace or global-economic-alignment were not secured over the weekend at the G7.
The week ahead will see meetings and releases from the Fed, ECB and BoJ along with US CPI figures, Trump’s North Korea Summit and UK Parliamentary Brexit ‘showdown’ with Theresa May facing a swathe of 15 amendments to the exit legislation from the House of Lords forcing her to broker a compromise amongst the factions within her Party or grind to a halt in Brexit negotiations. Does anyone else think there’s increasing need for a central bankers’ and prime ministers’ support group?