The net result, in FX-land, is that the Euro is (slightly) higher, as too are the Australian and New Zealand dollars, despite which the US dollar itself, in index terms, is also marginally higher. It’s not often you can say that, especially given that the narrow but widely followed DXY dollar index has a more than 50% weight in the index.  Squaring this particular circle is the fact that the Yen is weaker, aided by a combination of higher US Treasury yields and comments from BoJ Governor Kuroda that the BoJ has no intention of lessening its commitment to so called ‘Yield Curve Control’ and associated bond buying.

Higher US bond yields and higher US equities owe something to remarks from US Treasury Secretary Steve Mnuchin.  At an Institute for International Finance event in Washington, Mnuchin spoke optimistically of tax reform coming before the end of the year and not necessarily being tied to first completing reform of the Affordable Care Act (Obamacare) though on the latter, President Trump has just said that a new health care overhaul could come as early as next week.  Mnuchin also placed heavy emphasis on regulatory relief as well as tax reform as key to securing higher growth.  This has helped the financial sector again lead the S&P higher, albeit aided by good earnings from Amex (Visa has also just reported after the US close and has beaten its street EPS estimate).

On tax reform and important for the US dollar, Mnuchin stressed that the objective of tax reform was to make business taxes competitive and ‘bring back trillions of dollar’ to invest at home.  While he again expressed concerns about the efficacy of a so-called border tax, in part because of its potential implications for the dollar, the notion of incentivising US companies to repatriate profits locked up overseas still looks likely to form a major pillar of tax reform.

All this but to say ‘seeing is believing’, but Mnuchin’s remarks have played with the grain of a lift to US yields from data showing still very low levels of weekly US jobless claims (244kj) an okay Philly Fed survey and Dallas Fed President Robert Kaplan saying he still sees the Fed’s three rate hike median for 2017 as a good baseline (though he adds the Fed still has time to wait and see on the economy).  The net result here is that the dial on June Fed rate hike odds has shifted back to about evens from little more than a third earlier in the week.

Euro gains at the end of our day yesterday came on polls showing Macron pulling ahead of Le Pen in first round polls (see Chart o the Day) but have been undermined by NY day USD gains. The AUD meanwhile is back near 0.7525 and looks to have found some support from higher metals prices (led by aluminium).

Coming Up

Sunday’s first round of voting in the French Presidential elections will be one of the main talking point across global markets today.

The final TV appearance of all 11 candidates – each granted 15 minutes of individual fame rather than it being a debate amongst each other – is due to end about now. Snap polls indicating who was seen to have fared best, bearing in mind that some 40% of the French electorate claim to be undecided who they’d vote for (if anyone) will doubtless be populating the newswires during the day. Going into Sunday and ahead of the TV appearances, The Front National’s Marine Le Pen and the lesser known socially liberal, reform minded centrist Emmanuel Macron, are sitting fairly comfortably in the number 1 and 2 spots.

Data wise, nothing of note during the APAC time zone, but in Europe they’ll be keen interest in the preliminary (‘flash’) PMI data covering both services and manufacturing sectors for Germany, France and pan-Eurozone.  Expectations are for very minor falls across all these readings (by one to three tenths) but PMI data can usually be relied on to throw up at least small surprises  one side or the other of consensus.   Reaction to any significant deviations from expectations could well be deferred until after the French election results (expected from 04:00 AEST on Monday).

Elsewhere we have UK retail sales (-0.5% m/m expected) US Existing Home Sales, US Markit manufacturing PMI and Canadian CPI.

Overnight

On global stock markets, the S&P 500 was +0.76%. Bond markets saw US 10-years +1.95bp to 2.23%. In commodities, Brent crude oil +0.02% to $52.94, gold+0.0% to $1,282, iron ore +1.2% to $65.36, steam coal +0.1% to $84.15, met.coal -1.1% to $270.00. AUD is at 0.7527 and the range since yesterday 5pm Sydney time is 0.7493 to 0.7547.

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• Markets Today: 21 April 2017 (PDF,143kb)

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