Market wrap: US dollar index up 0.6% - Westpac

Analysts at Westpac offered an economic and market wrap.

Key Quotes:

"Global market sentiment: US bond yields rose for a fifth consecutive day on Monday, boosted by strong US manufacturing data. The US dollar, oil, and equities are also higher (Dow Jones index made a fresh record high).

Interest rates: US 10yr treasury yields rose from 2.29% to 2.35% - a two-month, while 2yr yields rose from 1.38% to 1.42% - a seven-year high. Fed fund futures yields were former, pricing the chance of a December rate hike at around 50%.

Currencies: The US dollar index is up 0.6% on the day. EUR fell from 1.1415 to 1.1355, partly due to anonymous ECB officials plus Weidmann and Mersch downplaying the proximity of a normalisation signal. The yen underperformed, USD/JPY rose from 112.50 to 113.46. AUD fell from 0.7675 to 0.7645. NZD fell from 0.7320 to 0.7273. AUD/NZD ranged sideways between 1.0480 and 1.0515.

Economic Wrap

US manufacturing activity (ISM) surged from 54.9 to 57.8 (vs 55.3 expected). That is a three-year high, and together with the construction update, caused the Atlanta Fed to revise its model-based prediction on Q2 GDP from 2.7% to 3.0%. Construction spending was flat in May (vs +0.3% expected), although April was revised 0.7ppts higher. Non-residential activity has weakened recently.

ECB board member Mersch said easy policy has helped the economy but it is not yet self-sustaining. Weidmann said an expansive policy is still needed, but that if economic improvements pass through to higher inflation then they could “lift the foot off the gas a little”.  Unnamed ECB sources siad some ECB members are growing cautious about lifting the easing bias as soon as July."