May 11, 2018, by Lorcan Roche Kelly
President Donald Trump’s tenure thus far has seen him walk away from international agreements, while showing little acumen for putting new ones together. However, the summit with North Korean leader Kim Jong Un, confirmed for June 12 in Singapore, gives the president the opportunity to show he can make the kind of deal that has eluded U.S. administrations for decades. United Nations Secretary-General Antonio Guterres said that the tough sanctions regime means he is optimistic a deal can be reached. On the domestic front, Trump will announce his plan to bring down drug prices in a speech later today.
Shhh, the bond market is trying to tell us something. The Treasury yield curve from 5 to 30 years flattened to the lowest level since August 2007 yesterday following the weaker-than-expected inflation print. With some analysts expecting the gap between short- and long-dated maturities to further diminish, investors and Fed officials will be on guard for signs the yield curve is inverting, a development that has historically preceded recessions. And bond bulls, take notice: hedge funds are showing no signs of backing down in their bets against U.S. Treasuries.
Failure to agree a broad governing coalition in Italy means that anti-establishment Five Star Movement and the the anti-immigrant League are now set to form Italy’s next government. The two parties, with very different policy goals in key areas, have until Monday to agree a program for government and select a prime minister. While bond markets have reacted relatively calmly so far, that may have more to do with the European Central Bank’s continuing asset-purchase plan than confidence in the potential new administration. Perhaps ironically, European Commission President Jean Claude Juncker and ECB President Mario Draghi speak today at a “State of the Union” conference in Florence, Italy.
Overnight, the MSCI Asia Pacific Index climbed 1 percent while Japan’s Topix index closed 1 percent higher as markets were boosted by expectations for a slower path of Fed tightening in the wake of the weak U.S. inflation print. In Europe, the Stoxx 600 Index was 0.1 percent lower at 5:45 a.m. Eastern Time as investors keep their eye on developments in Italy. S&P 500 futures pointed to a gain at the open, the 10-year Treasury yield was at 2.953 percent and gold was higher.
A busy week for crude traders took something of an unusual turn when OPEC-member Iran accused the U.S. of driving up oil prices. While there is an obvious geopolitical backdrop to the comments issued by the oil minister from the Islamic Republic, they also point to further difficulties in maintaining the current OPEC deal to curtail output. In the market this morning, a barrel of West Texas Intermediate for June delivery was at $71.47, with investors keeping an eye on the Baker Hughes rig count due at 1:00 p.m. to gauge how U.S. shale production is reacting to the higher prices.