US futures are flat, and European stocks are little changed after their longest winning streak since mid-March following a barrage of overnight news, including a dramatic escalation in fighting between Israel and Syria/Iran, a shocking election victory in Malaysia where opposition leader Mahathir Mohamad ended the six-decade rule of Najib Razak's party sending more shockwaves among emerging markets, and the blessing by Bersluconi of a new, anti-establishment, populist government in Italy.
The busy news agenda offers no respite to investors this week, with the tension between Israel and Iran mounting just days after U.S. President Donald Trump roiled the international community with his decision to ditch a nuclear accord with the Islamic Republic. Meanwhile, the stage is set for a populist government to form in Italy, and traders are rapidly coming to terms with an election upset in Malaysia. Many will now be looking to American inflation data as a welcome diversion.
Meanwhile, it is Ascension Day holiday across several European countries, leading to even poorer volumes, while the biggest economic catalyst of the week looms in the face of today's US CPI print due in under 2 hours.
While the latest burst higher in US equities may have taken a breather, overnight Asian shares advanced, largely tracking oil as WTI crude rose to the highest since 2014, topping $71 on rising middle-eastern geopolitical fears. Having breached 3% for the second time in 2 week, 10Y Treasury yields, which have been driving up the greenback and exacting pain on emerging markets, dipped back under 3% to push the dollar toward its first drop in five days.
Europe's Stoxx Europe 600 Index drifted lower on what is a public holiday in various parts of the region, with markets closed in countries including Switzerland, Sweden, and Austria. The main risk overnight was that Italy's 5 Star and League have made significant steps to form a government, and expect to finalize everything in a short time. Looking at Brexit, EU officials suggest that the EU is looking to find a way forward to maintain trade between the UK and EU post-Brexit despite having reservations about PM May's current plans.
Earlier, the MSCI Asia Index rose 0.5%, thanks to broad-based gains in stocks around the region. The Shanghai Comp. (+0.5%) and Hang Seng (+0.9%) shrugged off another liquidity drain by the PBoC to trade positive in which Hong Kong resumed its recent trend of outshining its regional peers, while participants also digested mixed Chinese inflation figures that showed CPI missed estimates at 1.8% vs. Exp. 1.9% although PPI growth gathered pace for the 1st time in 7-months to 3.4% as expected
The big story out of Asia was the shocking outcome of the Malaysian elections, where opposition leader Mahathir Mohamad's surprise victory ended the six-decade rule of Najib Razak's party and has investors bracing for further jolts across the EM space. While Malaysian markets were closed, trading in non-deliverable forwards suggested the ringgit will tumble Monday in the wake of the surprise ouster of the country's ruling party. The 2045-maturity dollar bond also declined. The dip in the dollar, however, stabilized developing markets which signaled stability after days of losses, and the MSCI Emerging Market Index rallied for a fourth day.
Elsewhere in FX, the dollar fell alongside Treasury yields ahead of U.S. CPI data and an auction of 30-year debt on Thursday. The pound edged up ahead of the Bank of England policy decision, while the New Zealand dollar slipped to a five-month low after its central bank left the door open for a possible cut. The Bloomberg Dollar spot index fell for the first time in five days as the dollar slid against most of its G-10 peers, with the biggest gains seen in the Canadian dollar; benchmark Treasury yields slipped below the 3 percent level
