Analysts at Westpac offered their market wrap, economic outlook and highlighted the key risks ahead.
"Global market sentiment: A disappointing US inflation report helped push the US dollar lower. Equities held up well (S&P500 +0.1%) despite continuing US-Nth Korea tensions.
Interest rates: US 10yr treasury yields fluctuated between 2.18% and 2.22% following the CPI data, but ended the session near the low. 2yr yields fell from 1.34% to 1.29%. Fed fund futures yields fell, pricing the chance of a December rate hike at around 35% (from 42%).
Currencies: The US dollar index closed down 0.4%. EUR rose from 1.1750 to 1.1847. USD/JPY fluctuated between 108.74 and 109.40. AUD rose from 0.7844 to 0.7909. NZD rose from 0.7253 to 0.7328. AUD/NZD ranged sideways between 1.0728 and 1.0815.
US CPI disappointed for the fifth consecutive month, the core measure at 0.1% (vs 0.2% expected), leaving the annual rate at 1.7% (vs 1.8% expected). Big drags were hotel room rates, vehicles, and wireless services, all of which could be deemed temporary. Further, the weak US dollar should eventually boost import prices. However, in the meantime, there is a risk that the Fed rims its inflation projections at its next meeting on 20 Sep.
Dallas Fed Pres. Kaplan said he was patiently waiting for evidence inflation will reach the 2% target. While a strong advocate of this year’s two rate hikes, he thought the Fed funds rate wasn’t as accommodative as some believed."
Australia: RBA Assistant Governor (Financial Markets) Chris Kent speaks at the Moody’s Analytics Forum in Sydney (9:35 am AEST).
Japan: Q2 GDP preliminary is expected to rise 0.6% as the economy benefits from higher exports and stronger manufacturing activity. Note that Q1’s final figure of 0.3% was revised down from a preliminary reading of 0.6% primarily due to inventories volatility.
China: Jul retail sales are expected to slow to 10.8%yr from 11.0%yr with softer employment growth creating a headwind. On the other hand, Jul fixed asset investment is expected to maintain a robust 8.6%yr ytd pace, while Jul industrial production too is anticipated to hold momentum at 6.9%yr ytd as PMIs point to favourable conditions.
Euro Area: Jun Industrial production is expected to fall 0.4% following May’s 1.3% rise. The drop is likely to be a one off given PMIs remain elevated."
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