The US dollar jumped on Friday night ahead of this week’s Federal Reserve Open Market Committee meeting. A bounce in May retail sales made traders second-guess the view that the Fed will prepare the way for a July interest rate reduction. However bond markets doubted the moves, and equities softened as high growth stocks fell.

Asian, European and American ten-year bond yields are at their lowest levels for at least a year. China is the only major market exception. This aggressive re-pricing of growth prospects by interest rate traders is not matched by other markets, and appeared to ignore the stronger than forecast 0.5% rise in core US retail sales. Although gold is holding higher ground, oil rallied, iron ore stands at record highs and share indices softened only slightly after a positive week.

The conflicting market reactions make predicting the outcome of today’s Asia Pacific trading more difficult. Share futures markets indicate opening gains in Japan and Australia, and modest pressure elsewhere. The 0.5% lift in the US dollar may make regional assets more attractive to international investors.

Trade issues remain at the heart of market concerns. The escalation of White House disruption into India produced an entirely predictable retaliation. The launch of the US presidential election campaigns this week increases the danger that political concerns will trump economic considerations. This increase in downside risk could bring higher market volatility.