Market Wrap: Risk appetite improved further - Westpac

Imre Speizer, FX Strategist at Westpac, provides a summary of Wednesday's market action, noting that risk appetite improved further overnight, with the S&P500 up 1.6%, Brent crude +3.7%, and the US dollar weaker.

Market Wrap

Global market sentiment:

Interest rates: The US 10yr treasury yield ranged sideways between 1.45% and 1.48%, the 2yr between 0.61% and 0.63%. Post-Brexit, markets had priced in a small chance of a rate cut from the Fed, but pricing now implies it will be on hold for at least the remainder of 2016.

Currencies:  The US dollar underperformed all. EUR rose from 1.1050 to 1.1130. GBP rose from 1.3300 to 1.3534. USD/JPY ranged sideways between 102.20 and 102.80. AUD rose from 0.7385 to 0.7456. NZD rose from 0.7080 to 0.7137. AUD/NZD drifted lower, from 1.0460 to 1.0435.

Economic Wrap

US personal income rose 0.2% in May (vs 0.3% expected), from an upwardly revised 0.5% gain in April. Personal spending rose 0.4% (as expected). Following the release of this data, the Atlanta Fed revised its estimate of Q2 GDP up from 2.6% to 2.7% yoy. The core PCE deflator remained stuck at an annual rate of 1.6%. Pending home sales fell 3.7% in May (vs -1.1% expected), a lack of supply cited as the main factor.

Economic Event Risks Today

NZ: ANZ business confidence. The outlook for activity (one early indicator of GDP growth) has been moderately upbeat, but with little pressure on prices. There’s also building permit data today, a small rise in building activity expected.

Australia: Private credit. Ahead of the RBA's May rate cut, credit to the private sector had lost a little momentum, monthly credit gains averaging 0.5% in 2016. We anticipate another soft outcome in May, a 0.4% rise in total credit.

Taiwan: Central bank decision. Brexit and still weak domestic demand tilt opinion in favour of another cut.

Eurozone: Flash CPI. A flat outcome is expected for June, the ECB’s hoped-for inflation uptrend yet to materialise.

UK: Gfk consumer confidence. The survey was conducted pre-Brexit vote, uncertainty probably a key contributor to June result.

US: Stress test results of all 33 large banks based in the US will be released by the Fed.