· The U.S. dollar rallied further to a five-month high on Wednesday, supported by relatively robust U.S. economic data in recent days, while Italy’s borrowing costs jumped and its stocks slid on concerns linked to economic plans from the country’s potential coalition government.
The dollar index .DXY, which measures the greenback against a basket of six other currencies, rose 0.16 percent to 93.365 after rising to 93.632 during the session, its highest since mid-December. The euro EUR= was down0.26 percent to $1.1806.
· U.S. Treasury yields ended slightly higher, with the 10-year yield touching near a seven-year high.
Benchmark 10-year notes US10YT=RR last fell 6/32 in price to yield 3.1001 percent, from 3.08 percent late on Tuesday.
· U.S. industrial production increased solidly in April amid an acceleration in manufacturing and mining output, the latest indication that the economy was gathering momentum early in the second quarter.
Industrial production expanded 0.7 percent in April, matching March’s increase, the Fed said. Manufacturing output, which accounts for more than 70 percent of industrial production, rose 0.5 percent as a 2.3 percent increase in machinery production offset a drop in production of primary metals and fabricated metal products.
· St. Louis Federal Reserve Bank President James Bullard on Wednesday said he believes the Fed’s policy rate is “pretty close” to neutral, and that further rate hikes would act to slow economic growth and push downward on inflation.
“If we start going up from here we are going to get into restrictive territory,” Bullard said in a Bloomberg Television interview. “Do we really want to do that when inflation expectations are already hovering below our target for the next five years?” Most of Bullard’s colleagues believe at least two more rates hikes are appropriate this year, given that unemployment is at 3.9 percent and inflation is edging up toward the Fed’s 2-percent target.
· Atlanta Fed President Bostic said that he raised 2018 GDP forecast estimates to 2.4-2.5% based on fiscal policy, though noted it was not certain how firms and people would respond to tax cuts. Bostic reiterated that be saw 2-4 rate hikes as being appropriate for 2018 (noting he was currently supporting 3 based on extra stimulus).
Bostic added that wages are up a little bit not in a runaway stage, implying that the Fed has not overshot unemployment much.
We believe the U.S. central bank does not need to be so aggressive that we invert the yield curve, adding that he thinks there us some risk of it happening later this year or early 2019, which would provide a negative signal for the US economy.
The CME FedWatch probabilities for the 4 interest rate hikes jumped to record 51.4% today, up from 34.1% seen just a month ago.
· The United States and China launch trade talks on Thursday in a bid to avert a damaging tariff war, with the White House’s harshest China critic relegated to a supporting role, senior Trump administration officials said on Wednesday.
Peter Navarro, the White House trade and manufacturing adviser, will not be a principal player on the U.S. side, two officials said. Instead, U.S. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer will lead the American delegation in talks with Chinese Vice Premier Liu He, the top economic adviser to President Xi Jinping.
· White House trade adviser Peter Navarro, a China trade hawk, is not expected to be one of the principal officials in the U.S. delegation for trade talks with China that begin on Thursday, a senior U.S. official said on Wednesday.
Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer will lead the U.S. delegation in talks with China’s trade envoy, Vice Premier Liu He, a second U.S. official said.
· China’s foreign minister on Wednesday took a swipe at the United States’ trade policy and defended international free trade on the basis of World Trade Organisation regulations.
· U.S. President Donald Trump acknowledged on Wednesday it was unclear if his summit with North Korea would go ahead after Pyongyang threatened to pull out of the unprecedented meeting, a move that could deny him a potentially major foreign policy achievement.
“We’ll have to see,” Trump told reporters in the Oval Office when asked if the summit was still on, though he insisted he would not back down from his demand for North Korea’s denuclearization.
· Despite throwing the widely anticipated June 12 summit with President Donald Trump into doubt Wednesday, experts say North Korea will most likely still attend talks in Singapore to discuss the possibility of denuclearizing the Korean Peninsula.
"I don't think this is a surprise. I actually think this is part of North Korea's playbook on negotiations," said Lisa Collins, a fellow with the Korea Chair at the Center for Strategic and International Studies.
"They do this from time to time to create leverage going into negotiations," Collins said, noting that the North reacted similarly ahead of the 1994 Agreed Framework and the Six-Party Talks, which both addressed the rogue regime's nuclear program.
North Korea abruptly canceled talks with Seoul scheduled for Wednesday and threatened to walk away from the June summit with Washington, blaming the joint U.S. and South Korean military exercises in the region.
· Special Counsel Robert Mueller has told President Donald Trump’s legal team he would follow Justice Department guidance that a president cannot be indicted, CNN reported, citing an interview with Trump lawyer Rudy Giuliani.
“All they get to do is write a report,” Giuliani said, according to the network. “They can’t indict. At least they acknowledged that to us after some battling, they acknowledged that to us.”
· An intermediary of a Russian oligarch and associates of then-U.S. presidential candidate Donald Trump coordinated responses to revelations of a meeting in which Trump’s eldest son expected to get “dirt” on Democratic rival Hillary Clinton, documents released by a U.S. Senate panel showed on Wednesday.
· Many of the documents made public by Senate Judiciary Committee Chairman Chuck Grassley focused on the June 9, 2016, meeting at the Trump Tower in New York between Donald Trump, Jr. and Nataliya Veselnitskaya, a Russian lawyer and acknowledged Kremlin informant.
· The meeting is being investigated by Special Counsel Robert Mueller as part of his probe into Russian interference in the 2016 presidential election and possible collusion with the Trump campaign.
The thousands of pages of emails, text messages, congressional testimony and other documents released by Grassley, a Republican, provide fresh evidence of coordination between associates of Trump and Russians with ties to President Vladimir Putin’s government.
· President Donald Trump on Wednesday said he would soon push for full funding of his promised wall along the U.S. border with Mexico, which could spark budget battles in a Congress fractured over his immigration policy.
· Italy’s two anti-system parties appeared on the verge of clinching a deal to form a coalition government, rattling markets with radical ideas to free up billions of euros for tax cuts and welfare.
Investors seized on a report that the anti-establishment 5-Star Movement and the far-right League party plan to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt, according to a draft the parties are working on.
Italian stocks .FTMIB tumbled 2.3 percent while Italy's 10-year bond yield jumped nearly 19 basis points to 2.13 percent IT10YT=RR.
· Oil prices gained on Wednesday, shaking off the effects of a strengthening dollar, after an inventory report showed U.S. crude and gasoline stocks fell more than expected.
Brent crude futures gained 85 cents to settle at $79.28 a barrel, while U.S. crude futures gained 18 cents to settle at $71.49 a barrel.
· OPEC sees oil’s rally towards $80 a barrel as a short-term spike driven by geopolitics rather than any supply shortage, four OPEC delegates said, a sign the group is not rushing yet to rethink its supply-cutting agreement.
Reference: Reuters, Trade Captain, CNBC
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