US DOLLAR STARTS THE WEEK STABLE TO HIGH
The US dollar is beginning steady to firmer note against most of the major currencies. The US reports Markit and ISM service reports, factors and durable goods for April. Non-farm productivity and unit labor costs are derived from the GDP report and the upward revision to growth point to upward revision to productivity and downward revision to unit labor costs. The Fed’s new Labor Market Conditions Index does not draw much attention. It stood at 3.5 in April (3.6 in March). These are the strongest readings since May-June 2015. It is expected to have slipped to 3.0 in May.
EMERGING MARKET LABEL IS OBSOLETE
Jerome Booth, a prominent investor and one of the most authoritative commentators on emerging markets, went so far as to say that many developing economies had become “safe havens” because of their much lighter debt burdens, significant economic clout and, in many cases, stronger creditworthiness.
It’s been noted that the main difference between developing nations and their advanced counterparts was that in emerging markets, the risks were already priced in. In advanced economies, on the other hand, investors never bothered to price in the risks because they perceived developed nations as more or less risk-free.
UK TERRORISM DOESN’T IMPACT MARKET
Moving into the final week before the UK election, traders also have to take into account the impact of yet another terrorist related incident in the UK in the past three months and the second attack of the election campaign.
Initially is seems as though markets have been minimally impacted, with sterling barely more than a dozen ticks lower, whilst the FTSE 100 is higher (the negative correlation trade seems to be still working). Perhaps this is a sign of the calm before the storm of the election.
TRUMP SET TO REVAMP THE FEDERAL RESERVE
The president is prepared to nominate Randal Quarles and Marvin Goodfriend to two of three vacancies at the central bank, according to multiple press accounts that have not been disputed by the administration.
Should Trump nominate the two men and they receive confirmation, it will represent the first steps in a possible substantial remaking of a Fed that has practiced ultra-loose monetary policy for the past decade but has been tight on banking regulations.
On the regulatory side, speculators says the two men would accelerate a Trump administration push to make rules friendlier for community and regional banks rather than big Wall Street institutions.
In another surprise, in the largest state election in Mexico, the PRI’s candidate Del Mazo appears to have won; turning back a challenge by the populist-Left Morena’s candidate Gomez. The peso has appreciated 1.8% in response, making it the strongest currency in the world today. The US dollar is holding a little above last month’s low (~MXN18.2420), which itself was the lowest since the US election when the greenback traded as last as MXN18.1635. It has traded near MXN17.90 briefly last August.