Market wrap: risk sentiment remained upbeat - Westpac

Analysts at Westpac offered their market wrap.

Key Quotes:

"Global market sentiment: Risk sentiment remained upbeat, helping equities and commodities, but subdued inflation depressed US bond yields and the USD.  

Interest rates: US 10yr treasury yields fell from 2.15% to 2.12% following the slippage in the PCE deflator, while 2yr yields slipped from 1.33% to 1.32%. Fed fund futures yields continued to price the chance of a December rate hike at around 36%.

Currencies: The US dollar index is down 0.2% on the day, having risen during the London morning but then reversing after the PCE deflator data. EUR initially fell to 1.1824, but rebounded in NY to 1.1910. USD/JPY fell from 110.63 to 109.88.

AUD initially fell to 0.7871, but rebounded as the USD fell, to 0.7950. NZD underperformed yet again, falling to 0.7132 (a three-month low) before it was rescued by the weaker USD. A fresh pre-election poll showing Labour above incumbent National caused a wave of selling. AUD/NZD was also boosted by a 3.7% gain in iron ore, rising to 1.1080 – a 16-month high.

Economic Wrap

US personal income rose 0.4% in July (vs 0.3% expected) and personal spending rose 0.3% (vs 0.4% expected). The recent pickup in income growth is supporting consumption growth which is on track for a strong Q3.

The associated price indicator – the core PCE deflator – was a different story, though, slipping from 1.5% yoy to a 19-month low of 1.4%, nudging it even further from the Fed’s 2% inflation target."