European and US equities ended the week in positive territory and the mild positive tone to the overnight session helped the S&P 500 move back to black for 2016.

In currencies, the USD had a mixed night making small losses against European currencies and the NZD while also gaining a little bit of ground against the AUD, JPY and GBP.

Overall markets in general took a breather on Friday and now appear to be on a wait and see mode. The USD has been on a broad based rally for three weeks with last week’s gains primarily driven by a repricing of Fed hike expectations following the release of the FOMC April minutes and Fed speakers who also reinforced the message that at least two rate hikes should be expected before the end of the year. Last week the BBDXY index climbed 1.1% and the USD outperformed all G10 currencies, barring the GBP.

Core global yield had a quiet end to the week. 10y US Treasury yields closed at 1.834%, essentially the same as Sydney’s closing levels while in Europe 10y Bunds closed -0.6bps at 0.164% and 10y gilts ended at 1.45%, +1.3bps.

In commodities, oil prices were a little bit softer with WTI and Brent down 1.2% and 0.3% respectively. Metal prices were mixed with gold -0.22% while silver was +0.26%. Iron ore had a good night climbing 2.6% finishing the week practically unchanged at $54.89, not a bad result after considering the 5.8% loss recorded on Thursday.

CFTC data for the w/e 17 May shows overall net USD speculative shorts were reduced once again, dropping to -56.34k from -82.54k previously. The reduction is consistent with the USD gains recorded over the period, but notably they do not include the impact from the April FOMC minutes released on Wednesday last week. This would suggest next week data is likely to show another reduction in net USD shorts. Looking at the breakdown of the data, it was notable that the biggest change of the week came once again from a reduction in AUD longs, down to 24.9k from 38.2k.

As for data releases, US April existing home sales rose 1.7% to 5.45m, marginally higher than 5.4m expected by consensus. In Canada, retail sales fell 1% in March, faster than the 0.6% drop pencilled in by economists. Core CPI for April printed at 2.2% yoy versus the 2.0% expected.

Sunday’s CoreLogic RP Data weekend auction data shows a preliminary capital city average clearance rate of 70% vs. 69.5% prev. Melbourne cleared a preliminary 70.7% down from a final 71.3% and Sydney 74.2% down from 76.2% previously.

Unsurprisingly the G7 summit of finance and central bank chiefs concluded on Saturday without any new announcements along the lines of a policy mix such as a coordinated fiscal stimulus strategy or structural reform. While the US and Japan, once again stated their difference of opinion on what constitutes an orderly or disorderly movement in a currency, officials agreed not to target currencies to boost growth and warned of the negative consequences from disorderly moves in exchanges rates. The global finance leaders did unanimously agree that a UK departure from the EU would be bad for the European and world economies. Lastly and perhaps preluding the widely expected Japan fiscal stimulus, both the US and Japan supported the need for fiscal spending.

Coming Up

We have a quiet start to the week with no domestic data releases scheduled for today. This morning Japan releases its April trade balance figures and BOJ Nakaso speaks in Tokyo. Later today European countries get their preliminary services and manufacturing PMI prints for May. The Markit Manufacturing PMI is also out in the US and Fed Bullard, Williams and Harker are scheduled to speak.

Looking at the highlights for the week, in Australia RBA Governor Steven’s speaks on Tuesday and we also get important GDP partials. NZ government announces its fiscal budget on Thursday and importantly Fed Chair Yellen speaks on Friday.

Overnight

On global stock markets, the S&P 500 was +0.23%. Bond markets saw US 10-years -1.03bp to 1.84%. In commodities, Brent crude oil -0.29% to $48.74, gold-0.2% to $1,253, iron ore +2.7% to $54.89. AUD is at 0.7224 and the range since Friday 5pm Sydney time is 0.7214 to 0.7246.

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• Markets Today: 23 May 2016 (PDF, 1MB)

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