Market Wrap: Risk appetite keeps improving - Westpac

Imre Speizer, FX Strategist at Westpac, notes that risk appetite improved further overnight, with the S&P500 up 1.2% and the VIX back at pre-UK referendum levels, adding that apart from fading Brexit stress, comments suggesting further stimulus from the BOE and ECB were supportive.

Maret wrap

Interest rates: The US 10yr treasury yield fell from 1.54% to 1.45%, the 2yr from 0.65% and 0.58%. Market pricing of the Fed slipped a little, continuing to imply it will remain on hold this year and next. US and core European yields fell amid comments from BOE Governor Carney that easing in summer will be needed and that the Brexit decision was a major regime shift. There was also a Bloomberg article citing unnamed officials who claimed a loosening of QE rules was being considered.

Currencies:  The US dollar benefitted from the weakness in the EUR and GBP. EUR fell from 1.1154 to 1.1024. Underperformer GBP fell from 1.3495 to 1.3213. USD/JPY bounced off 102.36 in NY to 103.29. AUD was steady between 0.7423 and 0.7463, apart from a brief early London dip to 0.7372. Outperformer NZD recovered from a similar dip to 0.7058, to reach 0.7142. AUD/NZD fell from 1.0500 to 1.0440.

Economic Wrap

US jobless claims rose from 259k to 268k in the latest survey week (vs 267k expected). Claims are averaging 267k so far in June, compared to 276k in May, 259k in April, and 265k in March. Chicago PMI rose from 49.3 to 56.8 (vs 51.0 expected) – the highest reading since Jan 2014. That said, the measure has been volatile.

The European Union had its debt downgraded by Standard & Poor’s, from AA+ to AA, citing fiscal concerns for the EU once it loses the UK - one of its wealthiest contributors.  “Going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will be subject to greater uncertainty,” S&P said in a statement.

Economic Event Risks Today

Australia: Core logic RP data home prices. April and May saw a surprising burst in momentum, but this looks to have eased in June.

Japan: Jobless rate, CPI: The labour market remains strong, but household spending remains weak. Deflation persists.

China: NBS manufacturing and non-manufacturing PMI’s are due, as is the Caixin manufacturing PMI. All continue to report sub-par conditions, with each headline index and the survey detail meaningfully below long-run average levels.

Asia: PMIs for Japan; Korea; Indonesia; Malaysia; Taiwan; and India are also due.

US:  ISM. The strength of the USD remains a concern, impacting US manufacturers’ competitiveness. Weakness in the energy sector is also a burden. Construction spending data is also out; likely to remain weak.