The bond sell-off we saw last night was probably the most interesting price action. Actually, it’s about the only price action we saw last night as forex and equity markets did little. Commodities, of course, dance to their own beat, but generally didn’t do a lot either, which makes that sell-off across global bond markets all the more fascinating.
What drove it? Data-wise, you’d think they’d rally more than anything, with fears of deflation rising in Europe. Data out last night only exacerbated those fears: eurozone inflation fell to 0.5 per cent year-on-year in May from 0.7 per cent in April, which only makes action from the surprise-prone ECB more likely.
In the US, there wasn’t even any offsetting data. Factory orders were good, I suppose ( 0.7 per cent in April), but then again economic data out of the US has been pretty good on the whole all through the bond rally.
The only other news flow that could have caused that bond sell-off came from the Kansas City Fed President Esther George, who said that the US economy was growing solidly and that the Fed’s fund rate would likely have to rise faster and earlier than what most on the Fed expect. That last bit identifies hers as a minority report, though. The Dallas Fed President (Fisher) probably supports George’s view, but again, the Fed chair and other influential FOMC members like William Dudley are unlikely to be moved. So the truth is there wasn’t much to push those rates higher -- but that’s what they did.
Rates pushed higher for a change, and moves were solid. The US 10-year Treasury yield up almost 7bp to 2.596 per cent. The 5-year Treasury yield was then up over 6bp 1.642 per cent, while the 2-year yield is at 0.406 per cent. Aussie futures were off 5 ticks on the 3s at 97.17, while the 10s were down 6 ticks to 96.225.
Equities were weaker on both side of the Atlantic, although moves were generally small. The S&P 500 was flat (1924), the Dow was only 21 pts lower (16722), while the Nasdaq slipped 0.1 per cent (4234). Over on Europe, the Dax was 0.3 per cent lower, the CaC fell 0.3 per cent as well, and the FTSE100 was off 0.1 per cent.
Forex markets saw hardly any movement. The euro pushed a little higher although moves were small -- 27 pips to $US1.3629. The British pound was little changed against at $US1.6751 (79 at the high), while the Australian dollar was unchanged at $US0.9265 with a high of 84. The US dollar crept higher against the Japanese yen at ¥102.52.
Commodities generally pushed higher, with the exception of copper, which fell 0.9 per cent. Elsewhere in the crude space, gold was up smalls and silver rose 0.3 per cent. As for crude, WTI was up 0.3 per cent to $102.8, while Brent was flat at $108.8.
Elsewhere in Europe, the unemployment rate fell to 11.7 per cent in April from 11.8 per cent, although Italy’s unemployment rate rose to 12.7 per cent from 12.5 per cent. In the UK, Nationwide reports that house prices surged 0.7 per cent in May for annual growth of 11.1 per cent. Finally for the US, the ISM for New York rose to 55.3 from 50.6.
Markets today. The SPI suggests our market will be relatively flat today with only 7 points on the SPI. Data wise, GDP 11.30am (AEST) is the main domestic release, and according to a Bloomberg survey, economists still look for an increase around 0.9 per cent following all the data we’ve seen over the last couple of days. Net exports, household consumption and residential investment look to be the key drivers of growth this quarter. Tonight, the key data out of the US includes the non-manufacturing ISM index and the Beige Book. There are a few other indicators out before that like the ADP employment report and trade balance.
Have a great day.