In a general wrap-up, analysts at TD Securities explained that North American equities were little changed in a sleepy session ahead of Wednesday’s FOMC meeting (SPX: -0.1%, TSX: -0.2%).
“USTs sold off by 2bps in the front-end to drive a bear-flattening move while Canadian yields edged higher by ~1bp across the curve.”
“GBP (+0.5%) was the top performing currency in G10 FX, with markets cheering reports that PM May will not seek an early election ahead of Brexit. SEK (-0.1%) saw a muted reaction to the non-confidence vote in Sweden and a speech by the Riksbank’s Jansson, while EUR (+0.2%) made another go at 1.18 before settling for a modest gain.”
“ANZ Business Outlook Survey and NZ trade are the local risk events for Wednesday ahead of the FOMC.”
What we’re watching in markets
“The major currencies are sitting in a holding pattern awaiting the next impetus. We think it is the Fed, though the recent spike in oil has raised some eyebrows. The next move in oil matters insofar as it offers a good reason to keep the selloff in global rates moving, especially as global output gaps are closing. Higher oil prices would support the ECB’s confidence that inflation is headed in the right direction.
10y Bund/Gilt yields are hovering around their new highs as markets re-assess the pace of policy tightening by the ECB and the BoE respectively. Meanwhile, BTPs yields outperform amid expectations of the Italian government abiding by the EU’s budget requirements.
All eyes will be on the FOMC decision on Wednesday, which we think should trigger a bullish reaction in Treasuries given the recent move higher in rates. The 2019 and long-run dots will be of particular interest.”