Main Themes: Share markets marched higher, after US-China trade tensions waned. US bond yields were mixed and an overnight rally in the US dollar petered out. The Australian dollar was an outperformer in the overnight session.
Share Markets: US share markets headed higher overnight. The easing of US-China trade tensions helped lift sentiment among investors. The US and China agreed to put tariffs on hold while they execute a framework to rebalance trade. At the close, the Dow Jones lifted 298 points (or 1.2%) and the S&P 500 jumped 20 points (or 0.7%).
Interest Rates: The US 10-year treasury yield remained subdued after falling on Friday, ranging between 3.06% and 3.08%. US 2-year yields were perkier, rising with risk sentiment from 2.55% to 2.57%. Fed fund futures yields continued to fully price in a rate hike at the Fed’s June meeting.
In Europe, Italian bond yields surged, as concerns over a potential fiscal blowout mounted.
Foreign Exchange: The US dollar index made a fresh five-month high overnight, but quickly reversed these gains. EUR/US made a five-month low at 1.1717, but reversed to 1.1780. USD/JPY reversed from a four-month high at 111.40 to 111.00. AUD/USD outperformed the majors, bouncing during early London from 0.7500 to a three-week high of 0.7573. An improvement in risk sentiment with the easing in US-China trade tensions has helped support the AUD. Base metal prices were also firmer overnight. NZD/USD also bounced, from 0.6885 to 0.6935. AUD/NZD rose from 1.0890 to 1.0928, keeping the month-old rally intact.
Commodities: Oil rose overnight to a fresh three-year high, as the International Energy Agency opened discussions with major oil-producing nations about falling output from Venezuela. Venezuela is home to the world’s largest petroleum reserves. OPEC-led production limits and Middle East tensions are also contributing to upward pressure on the world price of oil.
In other prices, base metals were firmer overnight.
Australia: There was no significant economic data released locally yesterday.
Japan: The trade surplus narrowed to ¥626.0 billion in April, from ¥797.0 billion in March. Exports rose by 7.8% in the year to April, up from growth of 2.1% in the year to March. The strengthening in exports, following softness in March, was encouraging, although the lift was less pronounced than expected. Annual growth in imports lifted to 5.9% in April, from a decline of 0.6% in March.
New Zealand: Retail sales volumes were weaker than expected, rising just 0.1% in Q1, missing consensus expectations for a 1.0% increase. It was the smallest increase in almost three years. This followed an increase of 1.4% in Q4 last year. Annual retail sales volumes increased 3.0% in Q1, down from 5.4% in the previous quarter.
United Kingdom: House prices rose by 0.8% in May and by 1.1% in the twelve months to May, according to Rightmove data. The London housing market is weaker than the national housing market. London housing prices fell by 0.2% in the year to May.
United States: The Chicago Fed national activity index lifted from 0.32 in March to 0.34 in April. The result was stronger than consensus expectations for a rise to 0.30.
A number of Federal Reserve members took to the podium overnight. Harker said the US economy was doing well and expected two more rate hikes this year. Bostic said the Fed is close to its two goals. And Kashkari, a well-known dove, said the Fed should not hike too quickly because wage growth is slow.
Today’s key data and events
US Richmond Fed Manufacturing index May exp 8 prev -3 (12am)
Times are AEST. All data forecasts are m/m or q/q and seasonally adjusted unless otherwise specified. Forecasts for Australian data are our forecasts and for other countries they are consensus forecasts.
Besa Deda, Chief Economist