Treasury Yields Fall after Speech by New York Fed President William Dudley

It was a quiet day in the financial markets with no major reports to digest following Friday’s release of the U.S. Non-Farm Payrolls report. There didn’t even seem to be a hangover reaction to the jobs report. The lack of fresh economic news shifted the focus to a speech by New York Federal Reserve President William Dudley. His speech did have some impact on the markets because he talked about a potentially hot topic for the new Fed Chair Jerome Powell.

U.S. Treasury Markets

U.S. Treasury yields fell Monday after a speech by New York Federal Reserve President William Dudley.

The yield on the benchmark 10-year Treasury Note fell to around 2.318 near the close, while the yield on the 30-year Treasury Bond fell to 2.797 percent.

Dudley drove yields lower when he urged Congress on Monday to “do no harm” in its deliberations on whether to roll back regulations implemented during the financial crisis, reported Reuters. These regulations, implemented during the financial crisis, introduced sweeping mandates including capital and liquidity requirements on banks.

“As we reflect on potential changes to the U.S. regulatory regime, we should not lose sight of the horrific damage caused by the financial crisis, including the worst recession of our lifetimes and millions of people losing their jobs and homes,” said Dudley.

Political news was also at the forefront on Monday with President Trump visiting Asia this week. On Monday, Trump visited Japan, saying he stood by the country when it comes to dealing with the “menace” from North Korea, Reuters reported; with Trump adding that both the U.S. and Japan should work together to fix issues with trade.

U.S. Equity Markets

The major U.S. equity indexes hit record highs on Monday as sentiment on Wall Street shifted away from earnings to merger and takeover talk.

Qualcomm rose percent and Broadcom jumped 1.4 percent after Broadcom offered to buy fellow chip maker Qualcomm for $103 billion. If completed, the deal would be the biggest in the history of the tech sector. In other related news, shares of Advanced Micro Devices also surged on merger talk, while shares of Disney and 21^st Century Fox also rose. 21^st Century Fox is apparently up for sale.

Forex

The U.S. Dollar rose on Monday, but much of that move was attributed to the weaker Euro. The USD/JPY lost ground after Dudley’s comments drove Treasury yields lower. The AUD/USD and NZD/USD also moved higher as investors prepared for central bank monetary policy statements and interest rate decisions later in the week.

Gold

Gold recovered from a sharp sell-off on Friday in reaction to the U.S. jobs report and a number of negative events last week. Gold was primarily underpinned by a drop in global interest rates. Germany’s benchmark bond yield hit a near two-month low as investors awaited clues on the European Central Bank’s asset purchase plans. U.S. Treasury yields also fell.

Crude Oil

U.S. West Texas Intermediate and international Brent crude oil futures soared to their highest levels since mid-2015 on Monday as a major political crisis in Saudi Arabia triggered an acceleration to the upside due to concerns over geopolitical risk.

According to Reuters, crude oil futures spiked higher early in the session in reaction to the Saudi Crown Prince Mohammed bin Salman’s coordinated arrests of several princes and ministers, as part of a crackdown on corruption.

The firing of a rocket from Yemen toward the Saudi capital of Riyadh this weekend also contributed to the geopolitical tensions in the market. Saudi Arabia is waging a war against Iran-supported rebels in Yemen.