It has not been another night of selling of US equities.  Rather, the Dow has steadied, up 56 points after yesterday’s 370 point rout.  It’s been more a stop-gap session. US Treasury yields have changed little, 10s at 2.23%, up ½ a basis point. There has been earlier testimony from former FBI director James Comey circulating, Comey saying that he had not been pressured for political purposes to close an investigation.  The implication then would be that President Trump is off the hook.  Without pre-judging how the Special Counsel investigations might run or uncover, they have in the past run for up to years.  Whitewater took several years to complete.

The USD has made a partial recovery, the DXY up 0.26%, the larger gains against the Yen and Sterling, and surging against the Brazilian Real (see below).  The USD was also not harmed by the release of another low weekly jobless claims report, while the Philly Fed index for May was supercharged, up to a reading of 38.8 from 22.0 (F:18.5).

US Treasury Secretary Mnuchin was delivering his first Congressional testimony, this to the Senate Banking Committee, Mnuchin speaking of the Administration’s goal to lift growth to 3%-plus and that the US Treasury has a team of 100 working on the Administration’s tax reform proposals.

The Pound was later afflicted by a mini flash crash that unseated the Pound from above 1.30, spiking briefly below 1.29, before steadying, but not recovering.  Sterling had earlier outperformed in the wake of a much stronger than expected April Retail Sales report that doubled expectations.  Headline ex-auto sales rebounded by 2.0%; including fuel, the rise was 2.3%.

It was politics that has hit the Real and Brazilian markets hard.  President Michel Temer has had allegations of corruption made against him (alleged recordings of him discussing hush money for pay-offs), having been appointed with the promise of a cleaner administration.  The Bovespa stock market index is down 8.8%, while the BRL has lost over 7% against the USD, trading this morning at 3.35/40, from earlier levels at around 3.10.  Temer is standing his ground amid a Supreme Court approved investigation.

The Euro, while losing some ground for the session against the partially-recovering USD, seems to be getting some support from an emerging view that the June 8 ECB meeting will sign off on a less dour outlook.  Draghi overnight said that the Euro-area recovery is becoming increasingly broad-based countries and regions.  He also noted how Euro area domestic demand had been the mainstay of the recovery.  French ECB member Benoit Coeure gave a Reuters interview overnight, saying that the ECB shouldn’t wait too long before taking away support.  He said that there is too much gradualism in policy normalisation.  Bundesbank President Jens Weidmann also weighed in, noting that political risks had diminished since the French Presidential election and that policy should be normalised if the recovery continues.

The official account of the April 26-27 ECB meeting also reported that the central bank left a re-assessment for the June meeting, members at the April meeting having disagreed on risks.  That disagreement seems to be continuing, though the tone of Draghi’s remarks seems to be relatively much less worrisome.  The minutes noted that new staff projections and data would put officials in a better position to take stock and re-assess the sustainability of the recovery and the outlook for inflation.  The first (recovery sustainability) would seem to get a tick; the second (inflation outlook), well that’s an assessment and outlook that many central banks are pondering right now, some more advanced in the cycle than the ECB as it considers whether to wind down QE in June.

After having rallied yesterday after yesterday’s stronger than expected employment report, the AUD has eased back to the lower 74s in the wake of the overnight somewhat firmer USD.  Iron ore prices eased $0.60/t, while coal prices firmed a little.  Having out-performed in the previous session, the NZD has under-performed in this session, down 0.38%.

Coming Up

There’s no key local data for today’s APAC session.  Even in NZ, net migration and credit card spending are unlikely to affect the Kiwi dollar.

Tonight, there are three ECB speakers, and the market will continue to sift through these speeches for the differing views.  It’s certainly now looking like the June 8 meeting will produce a shift to a more balanced assessment.  There is EC Consumer Confidence due, but this is not at all market sensitive.

The Fed’s James Bullard is speaking in the US and his views are well known: no need to lift the US Fed funds rate further, but the Fed should be now on the path to winding down its balance sheet, beginning with its holding of mortgage-backed securities.

Overnight

On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years +0.51bp to 2.23%. In commodities, Brent crude oil +0.00% to $52.5, gold+0.0% to $1,247, iron ore +0.0% to $61.60, steam coal +0.3% to $74.05, met. coal +0.0% to $174.50. AUD is at 0.7433 and the range since yesterday 5pm Sydney time is 0.7408 to 0.7467.

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• Markets Today: 19 May 2017 (PDF,110kb)

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