"Sea Of Red": S&P Futures, Bond Yields Tumble As All Out Trade War Becomes "Base Case"

Yesterday's modest selloff has become an all-out rout, dragging world stocks lower for 4 of the past 5 days, with US equity futures tumbling and global markets a "sea of red" as fears grow that the China-U.S. trade conflict is fast turning into a "technology cold war" (something we warned about last December) and as Wall Street's denial is finally shifting to acceptance that a lengthy, all-out trade war is now inevitable, and the only way out and for someone to concede is for markets to plunge. Sure enough, that's what they are doing this morning.

“It’s tin hats on and battening down the hatches for a fair bit of volatility for the next few months,” said Tony Cousins, Chief Executive of Pyrford International, the global equities arm of BMO Global Asset Management. “We are as defensively positioned as we could be,” he said, adding it was impossible to predict what steps Trump was likely to take next in the trade war with China.

Analysts at Nomura warned in a note that “without a clear way forward during an intensifying 2020 U.S. presidential election, we see a rising risk that tariffs will remain in effect through end 2020.”

While there were no major escalations overnight, China’s Commerce Ministry warned on Thursday that the United States needs to correct its wrong actions if it wants to continue negotiations with China, adding that talks should be based on mutual respect. The United States has escalated trade frictions greatly, and increased chances of a global economic recession, spokesman Gao Feng said at a weekly briefing, adding that Beijing will take necessary steps to safeguard Chinese firms’ interests.

Clearly this is merely the latest verbal escalation in what is now an out of control global trade war, however, the bigger reason for the accelerating rout is that as Bloomberg notes this morning, after months of predicting a trade deal between the world’s two largest economies, "economists at some of the biggest financial institutions are growing increasingly pessimistic." Goldman Sachs, Nomura and JPMorgan Chase "are among those that have rewritten their forecasts as U.S. President Donald Trump threatens to impose a 25% tariffs on around $300 billion of additional Chinese imports."

It could be even worse: one expert predicted tensions could endure until 2035. “We don’t think that there is an overnight solution,” said James Johnstone, co-head of emerging and frontier markets at RWC Partners LLC. “The accommodation of China as a rising power is something that the Americans and the West have been contemplating for a long time. This will be a 20-30 year accommodation.”

Asian stocks dropped for a third day, caving to a four-month low led by technology and communications firms, as the rhetoric between Beijing and Washington remained fierce while Europe’s bourses also fell as Brexit worries and gloomy data from Germany and the euro zone added to the nerves.

Most Asian markets were down, with Hong Kong and Taiwan leading declines. MSCI’s broadest index of Asia-Pacific shares outside Japan touched its lowest in four months. The Topix gauge fell 0.4%, with SoftBank Group Corp. and Sony Corp. among the biggest drags. The Shanghai Composite Index retreated 1.4% dropping near their lowest since February, driven by Ping An Insurance Group and Kweichow Moutai. The Indian market bucked the global picture after Prime Minister Narendra Modi’s party scored a historic victory in the nation’s general election with official data showing Modi’s Bharatiya Janata Party (BJP) ahead in 292 of the 542 seats available.

In Europe, trade fear was also rampant, with the Stoxx Europe 600 falling as much as 1%, hitting its lowest level since May 15, amid mounting worries over U.S.-China trade tensions. The Stoxx autos sector was hit the hardest, falling 3.1% to lowest since February; energy sector down 1.7%, industrial sector down 1.6%, tech sector down 1.6%. More ominously, the upward channel that was created early this year, has been breached.

European equities will likely fall further as today's dismal batch of euro-area economic data weighs on already low sentiment and future profits, especially for all-important cyclical sectors. The biggest surprise was German Manufacturing PMI which slumped once again, dropping from 44.4 to 44.3, below the 44.8 expected. Separately, IHS Markit said the euro-zone business situation could "deteriorate further in coming months." Germany also reported the latest dire IFO Busienss Climate report, which slumped to a 4 year low of 97.9, down from 99.2 in April, mainly driven by the assessment of current business conditions in the trade, services and, to some extent, manufacturing sectors. By contrast, the assessment of future economic conditions remained unchanged.

U.S. stock futures also pointed to a weak start with the S&P 500 e-minis faltering 0.5%, after the Communist Party’s flagship People's Daily newspaper published two commentaries assailing American moves to curb Chinese companies, warning the "world won't tolerate the US breaking rules" even if so far more nations are joining the US in its "campaign" against Huawei so far, including Japan, Australia, the UK, New Zealand, and South Korea likely to fold next (See "World Trade War I: US Asks South Korea To Join Anti-Huawei Campaign").

In rates, bonds rallied amid a cocktail of risk-off factors, including pressure on U.K. PM Theresa May to resign, weak euro-area data and continuing concern over U.S.-China trade. Portuguese 10y yield drops below 1% for the first time on record, following Spain, while Italian bonds drop amid equity weakness. Over in the US, 30Y Treasury yields dropped to lowest level since January 2018, with the rally starting during Asia hours after China published commentary saying the U.S. wants to start a "technology cold war." As noted above, German and euro-area PMIs for manufacturing and services miss forecasts, pushing bunds higher and bull-flattening core European yield curves; France underperforms as PMIs beat expectations.

In currencies, trade friction saw the safe haven yen in demand again as the dollar dipped to 110.11 yen and away from the week’s top of 110.67. The dollar was close to session highs, up on the euro at $1.1130 and touched a 1-month high on a basket of currencies at 98.235. Minutes of the U.S. Federal Reserve’s last meeting out on Wednesday underlined its readiness to be patient on policy “for some time” given the uncertain global outlook. The chance of a rate cut seemed to diminish as many Fed policy makers saw recent weakness in inflation as “transitory”, though the latest escalation in the trade war means markets are still wagering on an eventual easing.

Meanwhile, the sterling slide continued as it hit a 4-1/2-month low of $1.2603 weakening against the euro for a record 14th day as the prospect of Prime Minister Theresa May being forced from power brought yet more uncertainty over the U.K.’s Brexit strategy.

Theresa May came under intense pressure after her latest Brexit gambit backfired and fueled calls for her to quit, while prominent Brexit supporter Andrea Leadsom resigned from the government on Wednesday and with British media reporting May could announce her departure date as early as Friday the bets on a more hard Brexit replacement are rising.

Elsewhere, the Aussie declined and China’s yuan dipped even after the People’s Bank of China set its daily fixing at a stronger-than-expected level for a fourth straight day.

In commodity markets, spot gold was a bit higher at $1,274.73 per ounce. Oil prices added to losses suffered overnight after an unexpected build in U.S. crude inventories compounded investor worries about demand. U.S. crude was last down 48 cents at $60.94 a barrel, while Brent crude futures lost 57 cents to $70.41.

Looking at today's calendar, expected data include jobless claims, PMIs, and new home sales. Medtronic, Royal Bank of Canada, and Intuit are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.8% to 2,833.50
  • STOXX Europe 600 down 1.3% to 374.40
  • MXAP down 0.7% to 152.74
  • MXAPJ down 0.9% to 499.21
  • Nikkei down 0.6% to 21,151.14
  • Topix down 0.4% to 1,540.58
  • Hang Seng Index down 1.6% to 27,267.13
  • Shanghai Composite down 1.4% to 2,852.52
  • Sensex unchanged at 39,111.07
  • Australia S&P/ASX 200 down 0.3% to 6,491.79
  • Kospi down 0.3% to 2,059.59
  • German 10Y yield fell 2.4 bps to -0.11%
  • Euro down 0.2% to $1.1132
  • Italian 10Y yield fell 1.1 bps to 2.26%
  • Spanish 10Y yield fell 1.8 bps to 0.85%
  • Brent futures down 1.4% to $70.02/bbl
  • Gold spot up 0.2% to $1,275.59
  • U.S. Dollar Index up 0.2% to 98.26

Top Overnight News

  • The U.S. unilaterally escalated trade tensions and if it wants talks to resume, it needs to correct what it did and show sincerity, according to China’s Ministry of Commerce. The comments are the latest sign that China has no intention of making concessions
  • U.S. naval ships transited through the Taiwan Strait as faltering trade talks and the Trump administration’s move to restrict Chinese tech companies’ access to the American market fuels tensions.
  • May’s premiership is hanging by a thread as a high-profile U.K. Cabinet minister quit and a growing revolt over Brexit looked set to force her from power
  • Euro-area private-sector output remained subdued in May. A Purchasing Managers’ Index inched up to 51.6 from 51.5 in April. The bloc is currently headed for “lackluster” growth of around 0.2% in 2Q, according to IHS Markit
  • German business confidence in May was the weakest in more than four years as global trade tensions weighed heavily on the economy. The drop in the Ifo index was bigger than forecast and takes the closely-watched gauge to its lowest since November 2014.
  • Investors see a U.S. rate cut by the end of the year, but minutes of the Fed’s last policy meeting released Wednesday showed officials expect patience on rates to be appropriate for “some time”
  • U.K. PM May’s premiership is hanging by a thread as a high-profile Cabinet minister quit and a growing revolt over Brexit looked set to force the British leader from power
  • After months of predicting a trade deal between the world’s two largest economies, economists at some of the biggest financial institutions including Goldman Sachs Group Inc. are growing increasingly pessimistic
  • Early counting in the world’s biggest election show Indian Prime Minister Narendra Modi’s ruling coalition is heading for another five-year term in office
  • Oil extended losses after a surprise jump in American crude inventories alleviated concerns over a supply crunch, while the demand outlook remained bleak as there was no let up in U.S.- China tensions

Asian stock indices were mostly lower amid spillover selling from Wall St as US-China trade uncertainty remained at the forefront of market focus with the US mulling restrictions on several Chinese firms and as comments from China suggested and unwillingness to back down, as well as the potential for a prolonged trade dispute. ASX 200 (-0.3%) and Nikkei 225 (-0.6%) were negative with Australia dragged by weakness in its largest weighted financials sector and with energy names pressured after a more than 3% drop in WTI, while risk appetite in Tokyo was suppressed by a stronger currency and weak Nikkei Manufacturing PMI data which slipped into contraction territory. Hang Seng (-1.6%) and Shanghai Comp. (-1.4%) conformed to the negative tone due to the trade tensions and with some sabre-rattling from China in which Foreign Minister Wang Yi labelled US pressure on Huawei as pure economic bullying and warned they will fight to the end if the US uses extreme pressures, while China's top four official Wang Yang also suggested businesses should be prepared for a lengthy trade war. Indian markets bucked the trend and gained over 2% to record highs as the early election results showed PM Modi’s BJP and National Democratic Alliance were ahead in world’s largest democratic election with the BJP on course to achieve a majority on its own if the early results hold up. Finally, 10yr JGBs were higher as they tracked the upside in T-notes and with price action underpinned by safe-haven demand amid the mostly negative risk sentiment in the region.

Top Asian News

  • Huawei’s Own Operating System Could Be Ready This Year: CNBC
  • Modi’s Lead Signals Single-Party Majority in India Vote Count
  • Thomas Cook Tumbles on Downgrade Showing Default Is Possible
  • Japanese Shop for Bonds Overseas as Trade War Spurs Gains in Yen

Major European stocks are sliding [Eurostoxx 50 -1.7%] following on from a weak Asia handover wherein mainland China shed over 1.3% and Hang Seng declined in excess of 1.5%, as trade woes remain a grey cloud above markets. Equities in Europe saw a more pronounced decline amidst the release of disappointing EZ Flash PMIs and a downbeat Ifo Survey which was followed by Ifo economists stating that the export dynamic is very weak, business uncertainty remains very high and a recovery in the auto sector is not seen for the time-being. Heavy, broad-based losses are seen across the sectors; albeit healthcare, utilities and consumer staples to a lesser extent given their defensive properties. The IT sector (-2.3%) bears the brunt of a barrage of companies halting shipments to Huawei given the quarrel with the US over security, with Japanese tech giants Panasonic and Toshiba the most recent, albeit the latter announced that it has resumed shipments to the company. Nevertheless, STMicroelectronics (-4.2%), Infineon (-2.6%), Micro focus (-1.2%), SAP (-2.2%), ASML (-1.7%) shares are all pressured. In terms of individual movers, Deutsche Bank (-2.2%) shares found little reprieve as its AGM began following reports that a New York district judge has rejected US President Trump’s efforts to prevent Deutsche Bank and Capital One from complying with a congressional subpoena for the President’s financial records. Co. spokesperson said the bank remains committed to providing appropriate information regarding the investigation. At the AGM, the Co. noted that they are prepared to make tough cutbacks to their investment banking sector, and on DWS (-0.8%) they stated that they remain open to other strategic options. Finally, shares in Thomas Cook (-6.8%) plummeted after Fitch downgraded the Co.’s Long-Term Issuer Default rating to “CCC+” from “B”, outlook negative.

Top European News

  • French Companies See Fastest Growth in Six Months as Orders Rise
  • Universal Is Said to Eye Industry Bidder as Buyout Firms Balk
  • German Business Confidence Weakest Since 2014 on Gloomy Backdrop
  • Europe’s Biggest IPO of 2019 Gets Thumbs Up From Barclays, HSBC

JPY/CHF/SEK/NOK - The major outperformers as the Yen and Franc benefit from more safe-haven positioning, while the Scandi Crowns derive protection from broad risk-off sentiment with the aid of supportive and upbeat data to justify relatively hawkish Riksbank and Norges Bank policy stances. Usd/Jpy is eyeing bids ahead of 110.00 that are said to be fairly thick and layered, while Usd/Chf is pivoting 1.0100 and the Eur/Chf cross 1.1250. Elsewhere, Eur/Sek has backed off further from recent decade highs (10.8500) towards 10.7300 and Eur/Nok is testing 9.7500 in wake of better than expected jobless rates in April and March respectively (and with Swedish unemployment falling sharply in particular).

  • DXY - The Dollar is firmer vs the rest of the G10 after FOMC minutes underlining a patient and perhaps longer pause in normalisation than previously anticipated or flagged as it transpires that the transitory assessment on soft inflation is shared by other members aside from Powell with only a minority worried that it might unhinge expectations and warrant a rate cut. On the flip-side, there is a consensus that even if the economy develops in line with expectations it might be prudent to hold off from further tightening given ongoing risks, like trade. Hence, the index is forming a firmer base above 98.000 and inching closer to ytd peaks of 98.346 at 98.274, thus far.
  • CAD/GBP/EUR/AUD/NZD - All on the backfoot relative to the Greenback, as noted above, with the Loonie unwinding more of its brief post-Canadian retail sales gains and back below 1.3450 amidst a deeper retracement in oil prices and the ongoing US-China trade spat. Meanwhile, the Pound also has the Brexit situation to contend with and a near state of political limbo given that UK PM May is still widely expected to bow to increasing pressure if not this week then sometime after the WAB returns to Parliament and rejected yet again. On that note, the HoC leader Leadsom has now resigned in protest to lift the number of MPs that have departed to 36, and with the EU elections underway Cable continues to decline, just holding above 1.2600 vs Wednesday’s circa 1.2625 base. Similarly, the single currency has slipped under yesterday’s trough and through decent option expiry interest at 1.1150 (1.4 bn) to test support ahead of the 2019 base and more expiries at the 1.1100 strike (1 bn), and more downbeat Eurozone surveys have not helped as all bar the French PMIs missed consensus and Germany’s Ifo readings were mostly downbeat. Looking down under, the Aussie and Kiwi remain rooted near or at new lows for the year, as Aud/Usd is capped ahead of 0.6900 and Nzd/Usd slips further from 0.6500 awaiting NZ trade data.
  • EM - The Lira has been hit by more US-Turkey sanction jitters and dire sentiment news, this time in the form of a sub-100 manufacturing index, and Usd/Try topped 6.1500 in response before paring some gains. However, the Rand is also under pressure after soft SA data that could tip the SARB towards more dovish guidance later, as Usd/Zar rebounds to 14.4900.

In commodities, the energy complex continues its decline in the aftermath of this week’s surprise builds in US crude stocks coupled with a bleak demand outlook amid the ongoing US-China trade spat. WTI (-1.7%) futures reside just below the 60.50/bbl (having already fallen below its 50 DMA at 62.13/bbl) ahead of its 200 DMA at 60.24/bbl. Meanwhile, its Brent (-1.8%) counterpart recently slipped under its 50 DMA at 70.44/bbl, while gains are capped amid a rising Buck alongside a downbeat risk sentiment and bearish supply data as mentioned above. Elsewhere, gold (+0.2%) edges higher despite a firmer Dollar as investors seek the safe-heaven asset amid trade developments, dismal EZ flash PMIs and German confidence hitting the lowest level in over four years. Meanwhile, the risk-gauge copper (-0.4%) extends its losses with the red metal losing more ground below the 2.70/lb level ahead of its 200 DMA at 2.61/lb. Finally, ING highlights that LME nickel spreads have been tightening recently with the June/July spread trading around USD 32/t vs. USD 50/t last week. This is due to declining inventories which have fallen over 42k tonnes thus far this year, leaving inventories around the lowest levels since 2013.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 215,000, prior 212,000; Continuing Claims, est. 1.67m, prior 1.66m
  • 9:45am: Bloomberg Consumer Comfort, prior 59.9; Bloomberg Economic Expectations, prior 50
  • 9:45am: Markit US Manufacturing PMI, est. 52.7, prior 52.6; Services PMI, est. 53.5, prior 53
  • 10am: New Home Sales, est. 675,000, prior 692,000; New Home Sales MoM, est. -2.46%, prior 4.5%
  • 11am: Kansas City Fed Manf. Activity, est. 6, prior 5

DB's Jim Reid concludes the overnight wrap

If I could give advice to readers getting a new kitchen at any point in their lives it would be to read the instructions on the work surface you’ve bought. We didn’t and I left a cast iron pan lid to dry by the side of the sink. When moving it a couple of days ago we discovered a nice brown ring in the new work surface. I sighed, got a cloth and wiped it down. Not one bit of the stain disappeared. I rubbed harder and it made no difference. I then proceeded to put all sorts of surface cleaner on it and again nothing changed. I then got the notes left by the kitchen provider and point 1 said “don’t leave wet cast iron pans on your quartz work surface as it will leave a permanent stain”. That’s pretty much the main thing you can’t do and I did it. Anyway yesterday we got the quote to have it professionally sanded down which apparently is the only way to get rid of it. I nearly fell over backwards in amazement. I’m wondering whether we can make a feature of the brown ring instead!!! Double Sigh!!

One wonders what stains will be left after the next four days of EU Parliamentary elections here in Europe. They used to be fairly dull affairs but with the rise of anti-EU and populist party support, and the bizarre situation where the UK is taking part but likely to leave the Union this year, the next few days should be a fascinating political backdrop for a turbulent few years ahead for Europe. We also have the latest flash global PMIs today, which will be the first glance at the impact of the trade spat on global businesses. Overnight, Japan’s preliminary May manufacturing PMI slipped into contractionary territory at 49.6 (vs. 50.2 last month). Joe Hayes, economist at IHS Markit, said that "the re-escalation of US-China trade frictions has heightened concern among Japanese goods producers."

The tone this morning in Asia is on the negative side with the Nikkei (-0.71%), Hang Seng (-1.30%), Shanghai Comp (-0.84%) and Kospi (-0.04%) all down. Chinese companies like Iflytek (-5.56%), Hikvision (-4.68%), Xiamen Meiya Pico Information Co. (-5.57%) and Zhejiang Dahua Technology Co Ltd (-2.98%) are all down as they are reported by Bloomberg to be among five firms that the US is considering blocking access to vital American technology. China’s onshore yuan is down -0.10% to 6.9135 while the Indian rupee is up +0.38% alongside Indian equity markets (c. +1%) as early trends in vote counting show that the Modi government is poised to retain power. Elsewhere, futures on the S&P 500 are down -0.37%.

Before we get onto other markets over the last 24 hours lets preview the European elections and the rest of the PMIs. As discussed the EP elections actually take place over the next four days, with each of the 28 countries voting on the day they normally hold national elections. The UK and the Netherlands will kick off proceedings today, but most of the big EU countries (including Germany, France, Italy, Spain and Poland) don’t vote until Sunday. In spite of some countries finishing before then, the votes won’t actually be counted until the polls right across Europe have closed, so Sunday night is when we can start to expect results, with the final outcome on Monday.

DB Research have published a number of previews on the elections, with Kevin Koerner and Barbara Boettcher releasing a five-part countdown, looking at the Brexit delay, the race for the Commission Presidency, the different Eurosceptic parties, what’s happening in Germany, and a final preview yesterday (links here , here , here , here and here ). Meanwhile, Clemente De Lucia and Mark Wall have published a note on the implications for the populist coalition in Italy and market sentiment (link here ).

An interesting (or worrying depending on your view) fact about the EP elections is that in every vote since they began in 1979, EU-wide turnout has fallen, from a high of 62% at the first set in 1979 to just 43% last time round in 2014. Rightly or wrongly, they’re simply not seen as anywhere near as important as national elections but for the EU to succeed it will be difficult if Eurosceptic politics dominate in Brussels. Indeed, populists are expected to perform strongly in the first EP election since the migrant crisis and Britain’s vote to leave the EU in 2016.

According to the polls, we can expect to see some pretty striking results across the continent, with Kevin and Barbara writing that Eurosceptic parties of both left and right could get more than 35% of the seats if the current polls are correct, while for the first time ever the two main centre-right and centre-left groupings are projected to not have a majority between them, although pro-European forces as a whole are expected to. Here in the UK, Nigel Farage’s Brexit Party, which explicitly backs a no-deal Brexit, is polling in first place, while polls have put the governing Conservatives as low as fifth, something for which there is quite literally no precedent. The Brexit party, having only been formed a few months ago, are now poised to come first in a national election. Has a political party ever gone from non-existence to first place in a national poll so quickly?

In Italy, the right-wing Lega is expected to come first, with its leader Deputy Prime Minister Salvini having railed against EU deficit rules and clashed with other countries over taking in migrants. In France, President Macron’s party has been running neck-and-neck with Marine Le Pen’s Rassemblement National, with the final polls putting Le Pen’s party marginally ahead. This will be one to watch when results come through Sunday night/ Monday morning.

Staying with Europe, we have a busy day ahead, which includes the important flash May PMIs this morning. While the data will regardless be followed closely, the complication is that we won’t know the exact survey period until the data is out. So how much of the trade escalation period that gets captured is unknown and it may well differ for each country. This therefore adds a relatively high degree of uncertainty to the data – and makes the revisions in the final readings very important. Nevertheless, the consensus is expected to nudge up modestly for the Euro Area by 0.2pts to 51.7 with equal moves higher for the manufacturing (to 48.1) and services (to 53.0) sectors. Germany’s manufacturing reading will also be under the spotlight after only improving 0.3pts last month to 44.4 – only the second monthly improvement over the last 16 months. The consensus is for it to improve to 44.8 today. It’s worth noting that we’ll also get the May IFO survey in Germany today, which will also be closely watched for the trade escalation impact.

Over in markets, the tug-of-war around trade headlines continued for most of yesterday with risk assets on the back foot once again. The news about the US government considering banning China’s video-surveillance firms now a number of global phone companies announcing that they are no longer selling Huawei handsets was the latest twist in the saga. There was at least one glimmer of hope, however, as US Treasury Secretary Mnuchin suggested that Mr. Trump and Mr. Xi would likely meet at the end of June. He also kept the door open for exemptions to the latest round of tariffs. There was also speculation, fueled by yet another tweet from Xu Xijin, that China may consider blocking exports of rare earths to the US. These are essential for high-tech manufacturing, though the impact of an export ban would probably be so disruptive for both parties that it is probably not imminent. DB’S Michael Hsueh wrote about the subject here , where he explains the issue, the history, and the likely implications of any new limitations. Overall the S&P 500, DOW and NASDAQ slipped -0.28%, -0.39% and -0.45%, respectively, while the beaten-up Philly semiconductor shed another -2.12% to take it’s MTD decline to -13.57%. Energy stocks lagged as well, falling -1.58% as WTI oil fell -2.70% after US inventories rose more than expected again last week. The 4.7 million barrel build was the fourth bigger-than-expected build over the last five weeks. Things were a bit steadier in Europe where the STOXX 600 edged down -0.10% and DAX -0.18%.

The bulk of those moves came prior to the FOMC’s meeting minutes last night which offered a few interesting new comments. None of the macro discussion was news, and it has already been overtaken by the trade war escalation over the last few weeks. But on policy, it was noteworthy that the minutes discussed the future composition of the Fed’s balance sheet. It said “all else equal, a move to (a) shorter maturity portfolio would put significant upward pressure on term premiums and imply that the path of the federal funds rate would need to be correspondingly lower to achieve the same macroeconomic outcomes.” Though there doesn’t seem to be a lot of urgency in announcing any new plans, there is scope for the Fed to shorten the maturity profile of its holdings if it wanted to, since they are currently around 98 months versus the 69 months of the overall universe of outstanding treasury debt. Treasury yields were already lower before the minutes and ended down -4.1bpts, while the dollar traded flat. Curves were broadly flatter, with the 2y10y spread -1.2bps lower at 15.5bps, while EM FX finished marginally lower. Speaking of EM, it’s worth noting that Turkish assets were hit hard again yesterday. The BIST 100 index tumbled -1.92% and officially entered a bear market having dropped over 20% from the March highs, while the Turkish Lira sold off -0.78% (a further -0.40% this morning), taking it past 6.10 again. The Turkish lira is now down -13.63% YtD and is the second worst-performing currency behind the Argentine Peso, which is down -16.07% YtD.

In other news, the mood music over at Downing Street continues to lean towards PM Theresa May’s resignation sooner rather than later. That was certainly what all the headlines suggested yesterday and at one stage it even looked like she may resign as soon as last night. Various newsflow from journalists confirmed that there was pressure for the PM to pull the WAB in its current form. Theresa May will reportedly meet Graham Brady from the 1922 Committee on Friday, where he may push for her resignation. A possible catalyst to drive this timeline will be cabinet pressure, with Leader of the House Leadsom resigning last night. Sterling got hit another -0.35% yesterday, which means it has now dropped on eleven of the last thirteen sessions – for a cumulative decline of -3.88%. The Telegraph deputy political editor said overnight that the 1922 Executive now wants PM May to announce that she will step down as Conservative Party leader by June 10, at its Friday meeting. Sterling is trading down -0.14% this morning.

Those Brexit developments came as core CPI missed on the downside in April after staying put at +1.8% yoy versus expectations for a rise to +1.9%. Recreational and cultural items appeared to be to blame along with package holidays.

As for the Fedspeak, the minutes understandably overshadowed other remarks. NY Fed President Williams reiterated his positive view of the economy, saying that risks from abroad have receded. Nevertheless, he also said that he doesn’t see a need “to move interest rates one way or the other.” Boston President Rosengren said that the trade war “is one of the biggest risks,” while Dallas President Kaplan cited the yield curve as evidence that “expectations for future growth are sluggish.” He suggested that changes are needed to improve the outlook, which skirted close to but stopped short of arguing for a rate cut.

To the day ahead now, which this morning kicks off in Germany shortly after this hits your emails with the final Q1 GDP revisions. A reminder that the preliminary reading showed growth of +0.4% qoq. After that we get May confidence indicators in France before attention turns to those flash May PMIs. Not long after we then get the May IFO survey in Germany before focus turns to the US with claims, the flash PMIs, April new home sales and May Kansas Fed manufacturing survey all due. This evening we’re also due to hear from the Fed’s Kaplan, Daly, Bostic and Barkin when they speak on a panel, while over at the ECB we’ve got Guindos and Nowotny due. The ECB minutes from the meeting earlier this month are also due today. Of course, as mentioned at the top the EU Parliamentary elections also kick off today.