Scoreboard: Rate debate

There wasn’t a lot in the way of news or data last night. About the only thing of interest was a speech from the St Louis Fed President James Bullard -- and it wasn’t necessarily market-friendly. 

Well, it was and it wasn’t. He was more upbeat on the US economy -- but then again he had to be after last Friday’s payrolls report -- and being upbeat on the economy is good. On the other hand, he reckons the Fed may raise rates sooner than expected.

“If you get 3 per cent growth for the rest of this year, if you get unemployment coming down below 6 per cent, if you continue to have jobs growth at 200,000, if you continue to see inflation moving back up toward target, I think if we get to the fall of the year and all of those things are transpiring as I’m suggesting they will, that will change the conversation about monetary policy, and there will be more sentiment toward an earlier rate hike,” Bullard said.

Naturally enough, if the Fed hikes rates that’s bad for the market.

Equities reacted to that with a modest bid. It may have been modest but we’re talking some new record highs on both side of the Atlantic. The S&P 500, for instance, was 0.1 per cent higher at 1951, the Dow put on almost 19 points to be at 16943 -- both of those indices at record highs. The Nasdaq, 0.3 per cent higher for the session, isn’t too far of its own record made in 2000. Over in Europe, there were similar moves with the Dax at a new record, up 0.2 per cent, the CaC rose 0.2 per cent and the FTSE 100 was 0.4 per cent higher.

Forex markets saw a little action -- the euro was down almost 50 pips to 1.3591 in largely one-way traffic. There wasn’t much action outside of that -- the British Pound was little changed at $US1.6800 and similarly, the Australian dollar is pretty much unchanged at $US0.9353. The Japanese Yen did little and sits at 102.5.

Rates were little changed. The US 10-year yield traded on a 3bp range and settled at 2.609 per cent. The 5-year yield was up 2bp to 1.683 per cent, while the 2-year is at 0.427 per cent. Aussie futures were down 2.5 and 4 ticks a piece on the 3s (97.135) and 10s (96.180).

Commodities pushed higher and moves in the crude space were solid. WTI for instance is up 1.7 per cent to $104.4, while Brent was 1.1 per cent higher $109.9 following stronger US economic data. In the metals space, gold was up smalls ($1253), silver rose 0.3 per cent and copper was flat.

Elsewhere, China’s central Bank said it was making a targeted (50bp) cut in the Reserve Requirement ratio, but only to banks who lend to the rural and small business sectors. Earlier, data sowed Chinese exports rising 7 per cent annually (to May), but imports falling 1.6 per cent.

Markets today. The SPI suggests Aussie stocks will post a modest gain today -- up 0.3 per cent. Otherwise the key data for Australia will be the home lending figures at 11.30am (AEST) and NAB’s business survey at the same time. Looking abroad, Chinese inflation figures are also out at 11.30am (AEST). Tonight, the key data includes UK industrial production, while for the US we see small business optimism and wholesales sales data.

Have a great day.