Fed's Bullard: balance sheet could be allowed to shrink - Westpac

Analysts at Westpac offered their thoughts on the latest market developments as Trump pushed equities, interest rates, and the US dollar higher due to his plans to announce major tax changes in 2-3 weeks. 

Key Highlights:

•Global market sentiment: US equities, interest rates and the US dollar all rose after Trump said major tax reforms would be announced in 2-3 weeks. Fed official Bullard said its balance sheet could be allowed to shrink, helping bond yields rise.

•Interest rates: US 10yr treasury yields extended a two-week-old decline from 2.40% to 2.27%, the 2yr down from 1.17% to 1.14%. Fed fund futures slipped 1-2bp but continue to fully price the next hike by July.

•Currencies: The US dollar index is around 0.3% higher on the day, most of the rise coming after Trump’s tax comments. EUR peaked at 1.0710 during the London morning and then fell to 1.0653. USD/JPY rose from 112.15 to 113.30. AUD rose to 0.7664 pre-Trump comments, then fell to 0.7619. The NZD underperformed after the RBNZ disappointed a hawkish market, extending the decline overnight to 0.7174. AUD/NZD rose to 1.0630 (compared to 1.0450 pre- RBNZ).

Trade still at the top of Trump's agenda