May Day Calm

Many financial centers are closed for May. Japanese markets were open today, but will be closed for three sessions beginning Wednesday for the Golden Week celebrations. The US dollar is narrowly mixed. 

The yen is the weakest of the majors, off about 0.3% as the greenback pushes above least week’s high as it draws a bead on the JPY112.00 level. This area corresponds with a 50% retracement of the dollar’s decline from JPY115.50 in early March (~JPY111.85) and 38.2% retracement from the year’s high near JPY118.60 (JPY112.15). US 10-year yields are a touch firmer, which is correlated with a stronger dollar against the yen.

The main news today is that the US Congress appears to have struck a compromise on the spending for the remainder of the fiscal year that averts a government shutdown. The bipartisan agreement apparently has little in common with the wish list that President Trump had proposed. There is no money for a border wall with Mexico. There is money for Planned Parenthood. There are funds for famine relief and the National Institute for Health. The Department of Defense got about half the funds that the President requested and numerous policy restrictions were eliminated.  

While the Republican Party has a majority in the Senate and House of Representatives, it suffers internal divisions. The budget compromise illustrates that moderate Republicans and moderate Democrats have more in common with each other that with the more extreme wings of the respective parties. Recall, for example, that 16 Republicans rejected the agreement before the weekend for a few day extension to avert a government shutdown.  

US 10-year Treasury yields eased in the second half of last week. They slipped five basis points in the last three sessions but ticked up today. However, it is still is struggling to re-establish a foothold above 2.30%. The week’s key events include the FOMC meeting, US auto sales, April jobs report, the quarterly refunding announcement and a host of corporate earnings. On balance, after a weak March, both auto sales and employment is expected to bounce back.