Market wrap: mixed outlook on Russia/ US risks - Westpac

Analysts at Westpac explained that the equity rally inspired by China president Xi’s speech was punctured by US president Trump’s tweeted missile threats against Syria and Russia – though he did also suggest ending the arms race with Russia. 

Key Quotes:

"US treasury yields and USD also softened in the NY morning as US March CPI printed a little softer than expected.

"US March CPI fell 0.1%, against expectations for a flat outcome, while the core rate matched consensus, rising 0.2% in the month. The annual core rate has perked up from 1.8% to 2.1%, its highest pace in a year, as weak CPI reads from a year ago drop out of the calculations. Again, this is not the inflation measure the Fed targets."

"The March FOMC minutes had a mild hawkish lean, members citing a "significant" growth boost from tax cuts while “all members” noted the outlook beyond the current quarter had strengthened in recent months. “A number” believed the outlook called for a steeper Fed hike path. Against that “a couple” of Fed officials cited benefits of delaying a hike and a "strong majority" saw the prospects for a trade war as posing downside risks."

"EUR/USD rose from 1.2360 to 1.2396 before falling to 1.2347 on the FOMC minutes. GBP/USD was choppy but little changed net, in the high 1.41s. USD/JPY fell from 107.10 to 106.65, the safe-yen outperforming."

"AUD preserved recent gains, ranging between 0.7740 and 0.7773. NZD similarly followed the broad USD gyrations, between 0.7345 and 0.7380. AUD/NZD ranged sideways between 1.0515 and 1.0555."

"The US 10yr treasury yield initially fell from 2.80% to 2.76% on the tweets about missiles before pushing back to 2.78%. 2yr yields also round-tripped between 2.32% and 2.28%. Fed fund futures yields were little changed, pricing the chance of the next rate hike in June around 85%."

"The Treasury’s monthly fiscal data showed a larger than expected deficit in March, -$208.7bn, with receipts -2.7%yr and outlays +6.8%yr. Still on the topic of fiscal policy, House Speaker Paul Ryan said he would not run for re-election in November."