- Risk sentiment improved overnight, lifting US equities (S&P500 +1.8%), interest rates, and oil prices (+1%), while the US dollar was little changed. Mexico’s President said it expected to avoid US tariffs, and Fed Chairman Powell said rates could be lowered if required.
- 10yr treasury yields reversed course yesterday, helped by improved risk sentiment, and continued overnight from 2.08% to 2.15%, 2yr yields similarly rising from 1.86% to 1.92%. The chance of a Fed rate cut by September, implied by Fed fund futures, remained at around 100%, the improved risk sentiment appearing to dominate GED Chair Powell’s dovish comments.
- Australian 3yr yields extended yesterday’s rise, from 1.11% to 1.15%, while 10yr yields rose from 1.50% to 1.55%. despite the RBA cutting its cash rate from 1.50% to 1.25% and maintaining an easing bias. Market pricing for the August meeting retreated from 80% (pre-RBA) to 70%, perhaps disappointed the RBA’s guidance regarding further rate cuts wasn’t stronger.
- The US dollar index is unchanged on the day.
- EUR round-tripped from 1.1265 to 1.1227 and back.
- USD/JPY rose from 107.55 to 108.36 before retracing to 108.00.
- AUD extended yesterday’s rise from 0.6965 to 0.7004 in ragged fashion.
- NZD similarly rose from 0.6580 to 0.6620.
- AUD/NZD eked a 1.0570 to 1.0608 range, with the high trading just after the RBA rate cut yesterday.
- FTSE +0.5% at 7212, DAX +1.7% at 11993, CAC +0.4% at 5268, Nikkei +1.3% at 20720, ASX 200 +0.9% at 6388, Shanghai Comp -1.0% at 2862
- Dow +2.0% at 25267, S&P +2.0% at 2804, NASDAQ +2.6% at 7527
- US 2yr yield +5bps at 1.88%. US 10yr +5bps at 2.12%. VIX Volatility -10% at 16.97
- Commodities CRY +0.4% at 175.49, Natural gas +0.7%, Cotton -0.6%, Crude Oil -0.6%, Copper +0.6%, Wheat -2.4%, Sugar +1.8% Gold at $1326/oz
With the RBA delivering the expected 25bps cut yesterday, local investors will now fix their attention on today’s GDP release. Markets suggesting that Q1 GDP growth looks to have been soft although we have lifted our estimate from +0.2% q/q to +0.3% q/q after incorporating partial indicators (our thoughts are rounding between 0.3% and 0.4% ). As always, the main uncertainty remains around household spending in the quarter – we assumed +0.4% q/q.
Tonight’s ADP employment data is the first of 3 indicators of the US labour market due this week. The US labor market, continues to be in good shape. Labor measures have suggested continued health during the month with initial jobless claims remaining near cycle lows and the "labor differential" measure in the Conference Board's consumer confidence release reaching a cycle high. The trend pace in payrolls growth suggests continued downward pressure on the unemployment rate should persist.
The AUD/USD pair is up for a third consecutive day, battling to extend its recovery beyond the 0.7000 figure.
Technical indicators maintain their bullish slopes despite being in overbought territory, skewing the risk toward the upside moreover if the pair breaks above 0.7030, now the immediate resistance.
Support levels: 0.6980 0.6940 0.6895
Resistance levels: 0.7030 0.7075 0.7110
Event Risk Data Today
- Australia: Q1 GDP is expected to rise 0.5%. Market forecast is for a 0.6% increase comprised of +0.3ppt contribution from domestic demand, largely due to public spending, +0.04ppt from inventories and +0.23ppt from net exports. RBA Head of Economic Analysis Heath speaks on “Australia’s Resource Industry – A Look into the Crystal Ball” in Perth (11:30 am Sydney time).
- China: May Caixin services PMI is released.
- US: May ISM non-manufacturing is anticipated to hold around a solid level of 55.6. The Fed’s Beige Book is released. Fedspeak involves opening remarks from Clarida at the Chicago Fed Conference, Bowman in her Nomination Hearing before the Senate.