Market wrap: dollar and US yields higher - Westpac

Analysts at Westpac offered a market wrap where the dollar and US yields climbed.

Key Quotes:

"Global market sentiment: Strong US data lifted the US dollar and bond yields, sending the AUD and NZD lower.

Interest rates: US 10yr treasury yields rose from 2.24% to 2.28%, 2yr yields from 1.33% to 1.35%. Fed fund futures yields firmed, pricing the chance of a December rate hike at around 47% (from 43%).

Contributing to volatility was a large $16bn bond issue by Amazon – the fourth largest this year – to help fund its purchase of Whole Foods. FOMC member Kaplan repeated last Friday’s comments about being patient on rate hikes.

Currencies: The US dollar index is up 0.4% on the day, making a two-week high. EUR fell from 1.1780 to 1.1687, partly retracing later to 1.1740. USD/JPY rose from 110.25 to 110.85, the safe-haven yen underperforming amid improved risk sentiment. AUD extended a two-week slide from 0.7840 to 0.7808. Iron ore fell 1.4% yesterday. NZD fell from 0.7300 to 0.7230 – a one-month low. The GDT dairy auction was disappointing relative to market predictions. AUD/NZD rose from 1.0750 to 1.0814.

Economic Wrap

US retail sales rose 0.6% in July (vs 0.3% expected), with the various core measures also exceeding expectations. Together with upward revisions to the previous two months, the report supports the view that the consumer sector is in good health, helped by a buoyant jobs market.

Surveys were upbeat too. NY manufacturing (Empire) jumped from 9.8 to 25.2 (vs 10.0 expected) – a three-year high. Gains were seen in most sub-components. Homebuilder sentiment (NAHB) rose from 64 to 68 (vs 64 expected). Builders are encouraged by the jobs market and overall economy but see headwinds from labour shortages and rising materials costs.

Business inventories rose 0.5% in June (0.4% expected). Import prices rose 0.1% in July (as expected, and export prices rose 0.4% (0.2% expected).

The GDT dairy auction saw prices slipping 0.4% overall, with WMP down 0.6% (vs futures pricing a 4% rise), SMP up 0.3%, and butter down 1.3%."