The US 10-year yield rose to 2.43, the highest levels since March. A series of factors that provided a confusing outlook for the US look to have converged supporting demand for US assets. Economic data such as ISM and durable goods have surprised significantly to the upside.
While the divergence between real and survey data remains a question, corporate American continues to produce hard revenue. In the current earning season 70% of S&P 500 companies that have reported beat profit expectations.
In politics, tax reform seem to be mostly on track (rift on funding for tax reform based on repealing SALT deduction is the current issue) and in a Fox News interview, President Trump said he was considering reappointing Janet Yellen as Fed Chair.
Finally, in the same interview discussing NAFTA, despite an initial threat to “terminate the deal”, there is a general feeling that comment was an negotiating tactic. Spillover into CAD and MXN was limited. Even minor correction in the Asia market failed to dent the USD strength against JPY and EM currencies. However, a more dovish Fed and failure of tax reform to reach the floor will likely hurt the USD bullish trend. We remain cautious on digging to deep into USD long ahead of today's critical ECB meeting.