Trump-Kim Summit Made Italy Very Happy
The Italian-German yields gap reduced thanks to news about a Trump-Un meeting. North Korean leader signed a "comprehensive" letter and the beginning of meeting was hailed as promising. Donald Trump even claimed it was "better than anybody could have expected", adding that the denuclearization process might start "very, very quickly". The discussion, however, might take longer than the President assumes. Overall, markets are very hopeful about the summit.
Additionally, Italy’s Economy Minister Giovanni Tria stated that the new government wasn’t planning to quit the common currency. Benjamin Schroeder, an ING strategist, described such a positive dynamic in borrowing costs as: "There is some positive sentiment from the North Korea news even though a lot of the progress has been priced in already," adding: "Also I think the move today is a continued reaction to the headlines from ... Italy."
Italian 10-year government bond yields dropped 5 bps, thus the spread with Germany decrease to 229 bps. The spread even hit a weekly minimum of 225 bps at one point. Top-rated Eurozone government bond yields grew 1-2 bps across the board. German 10-year yield even increased to the maximum of 0.519% and then closed 0.51%, which marked a 1.5 bps daily rise.
The Fed is expected to execute a 1.75%-2.00% rate hike at its today’s meeting. Fed fund futures are pricing in 94% chance for it. Another highlight of this week is ECB policy statement. Mario Draghi is expected to address the asset purchase program ending and his comments will definitely move EUR/USD.