Market and economic wrap: dollar and rates lower - Westpac

Market Wrap by Analysts at Westpac...

Key Quotes:

"Global market sentiment: US markets returned from the Monday holiday and pushed the US dollar and interest rates lower. The US data was mixed.

Interest rates: US 10yr treasury yields fell from 2.24% to 2.21%, 2yr yields from 1.29% to 1.28%. Fed fund futures yields were slightly firmer, pricing a June rate hike as an 90% chance.

Currencies: The US dollar index is down 0.2% on the day. EUR rose from 1.1110 to 1.1205. USD/JPY spiked higher to 111.24 after the US data releases but quickly reversed, touching 110.67. AUD rose from 0.7420 to 0.7468. Outperformer NZD rose from 0.7040 to 0.7102 – a three-month high. AUD/NZD slipped from 1.0560 to 1.0520.

Economic Wrap

US personal income and spending both rose 0.4% in April (as expected). The core PCE deflator rose 0.2% in April (vs vs 0.1% expected), taking the annual pace from 1.6% to 1.5% (as expected). The headline PCE deflator fell from an upwardly revised 1.9% annual pace to 1.7%. Corelogic house prices rose 0.87% in March (vs 0.90% expected), taking the annual pace to 5.89% (from 5.85%). Conference Board consumer confidence fell from 119.4 to 117.9 – a still robust level – although future expectations were notably weaker.

FOMC dove Brainard was upbeat on the US economic outlook and the evolving global economy, but sounded caution on inflation which had softened recently. She expected another rate hike “soon”. Hawk Kaplan expected two more hikes this year and preferred balance sheet normalisation to begin later this year. He too was concerned about the recent softening in inflation but saw it as transitory.

German CPI fell 0.2% in May (vs -0.1% expected), for an annual pace of 1.5% (from an Easter-boosted 2.0% in April). This suggests the overall Eurozone number will slip from April’s 1.9%, supporting the doves at the ECB who argue for a continuing easy stance."