Global equity markets are entering a key period, with earnings season ramping up against a backdrop of mounting geopolitical tensions around Syria and North Korea and the US bombing Afghanistan on Thursday night and the upcoming elections in Europe. Trump’s struggle to push through his fiscal agenda and the debate over the pace of monetary policy adjustment in the world’s biggest economy also cloud the picture.

The markets reacted with a safe-haven bid which pushed the yield on the US 10-year Treasury note down to its lowest point of the year at 2.25%. The cost of insurance against a significant swing in the euro against the dollar and the yen over the next month has also surged. Volatility, as measured by the Chicago Board Options Exchange Volatility index, jumped to 15.9 from 12.8 last week. Oil and Gold also continued their rebound this week.

Macro:

With under two weeks to go before the first round of the French presidential election, opinion polls have taken a surprising turn. Support for far-left candidate Jean-Luc Mélenchon has surged following his impressive TV debate performances. If his momentum continues, he could soon overtake François Fillon for third place.

April has seen a surge in the cost of insuring against a significant swing in the euro against the dollar and the yen over the next month — a period that covers both rounds of the election — as candidates begin their final push for votes.

Equities:

Global equities dipped this week with the intensification of geopolitical jitters over rising tensions on the Korean peninsula and the possibility of a stronger US commitment to oust Syria’s Russian-backed leader Bashar al-Assad.

US Banks’ Q1 earnings kicked off on Thursday last week with JPM, WFC and Citigroup reporting earnings before market. All the three stocks ended in the red on Thursday.

Bonds:

The Treasury yield curve flattened with back-end yields (10 to 30 year part of the US Treasury curve) falling on the back of comments from President Trump that the dollar is getting too strong.

Over in France, yields on shorter-dated French government bonds have risen more sharply than their longer-dated counterparts over the past month. The short-end French spread to Germany on the other hand has widened to the most in five years.

FX:

The USD was broadly sold off after Trump said USD getting too strong and revealed dovish Fed bias. The dollar shed 1.75 percent against the yen last week, its fourth week lower in five, as a rise in tensions in Asia and Europe prompted buying of the safe-haven Japanese currency. Sterling hit a six-week high against the euro on Thursday as jitters ahead of the first round of the French presidential election and a week of upbeat data in the UK gave the British currency some respite from Brexit worries. SGD sold off after a “not so hawkish” MAS stays on hold and maintains the dovish “extended period” guidance. Despite better data, caution on economic outlook will limit the extent of SGD resilience.

Commodities:

Gold and Oil prices continued their rebound, with West Texas Intermediate crude rising to $53.25 from $52 a week ago and gold up 2.48% for the week, breaking critical resistance at $1,280 to close the week at $1,285.69.

Week ahead:

Apr 17:

  • US Empire Manufacturing Apr
  • UK house prices YoY
  • China GDP, Q1
  • China Retail sales
  • China IP
  • China FAI

Apr 18:

  • US Housing Starts
  • Fed’s George Speaks at Bard College Conference
  • US Industrial Production Mar
  • China March Property Prices

Apr 19:

  • Fed’s Rosengren Speaks at Bard College Conference
  • US Federal Reserve Releases Beige Book
  • Eurozone New Car Registrations
  • Italy trade balance Feb
  • Eurozone trade balance
  • Eurozone final CPI (Mar)

Apr 20:

  • Japan Trade
  • Eurozone: consumer confidence Apr
  • German PPI Mar
  • French presidential TV debate
  • Eurozone construction output YoY Mar
  • US Initial Jobless Claims,
  • Philadelphia Fed Business Outlook Apr

Apr 21:

  • Flash PMI Japan, US, Europe
  • UK retail sales Mar
  • US Existing Home Sales