TALKING POINTS – YEN, TRADE WAR, POUND, CARNEY, BREXIT

• Japanese Yen, Swiss Franc rise as White House reboots trade war jitters
• Canadian Dollar falls on fears US auto probe to undermine NAFTA talks
• Dovish comments from BOE’s Carney may derail British Pound bounce

The Japanese Yen outperformed in Asia Pacific trade as risk appetite soured across regional bourses, offering a familiar boost to the standby anti-risk currency. Trade war jitters unnerved investors after the White House launched a probe into auto imports that is eerily reminiscent of the one that served to justify a sharp hike in aluminum and steel tariffs.

The similarly-minded Swiss Franc also advanced as sentiment soured. Lingering unease about Italian politics probably helped beyond trade-related concerns. The currency reclaimed its regional safe-haven credentials recently, tracking a widening spread between German and Italian 10-year bond yields (reflecting the added risk of lending to Rome vs Berlin) as markets cast a worried eye on an incoming populist government.

The  Canadian Dollar suffered. Motor vehicles and parts are its home country’s top export commodities and the US is the by far the largest destination market, accounting for close to 80 percent of cross-border sales. It is hardly surprising then that the prospect of a US tariff on autos weighed on the currency, especially since any such move might complicate on-going NAFTA renegotiation efforts.

The British Pound edged up amid reports that UK Prime Minister Theresa May will ask the EU for a second post-Brexit transition period to run until 2023, maintaining the status quo on customs and thus avoiding a disruption of commercial activity. The US Dollar lost a bit of ground after a reserved tone in minutes from the May 2 FOMC policy meeting stopped short of boosting rate hike bets beyond 2018.

Looking ahead, a speech from BOE Governor Carney headlines an otherwise quiet calendar in European trading hours. Comments echoing recent dovish pronouncements might weigh on Sterling, trimming earlier gains. Beyond that, sentiment trends look likely to remain in the driver’s seat. S&P 500 futures are firmly in the red, hinting at further Yen gains as the dour mood persists in the hours ahead.

ASIA PACIFIC TRADING SESSION

EUROPEAN TRADING SESSION

** All times listed in GMT. See the full economic calendar here.