Market wrap: markets remained risk-averse

Analysts at Westpac offered their Market Wrap:

Key Quotes:

"Global market sentiment: Markets remained risk-averse amid the US-Nth Korea tensions, benefitting safe-havens such as gold, the yen, and US treasuries; and hurting equities (S&P down 1.4%).

Interest rates: US 10yr treasury yields fell from 2.25% to 2.20% - a one-month low. Fed fund futures yields slipped, pricing the chance of a December rate hike at around 42%. In addition to the risk averse mood, there was a soft PPI inflation report to help depress yields. Fed dove Dudley sounded upbeat on the economy, causing a temporary bounce.

Currencies: The US dollar index is down 0.2% on the day, the defensive yen performing best. EUR rose from 1.1705 to 1.1784. USD/JPY fell from 110.20 to 109.20. AUD continued to range sideways between 0.7865 and 0.7905. NZD’s slight bounce post-RBNZ yesterday morning gave way to a sharp fall following RBNZ’s McDermott’s “intervention” comments late in the day, down to 0.7252 and then consolidating overnight. AUD/NZD rose to 1.0862 – a three-month high, the RBNZ and iron ore (+1.6% to a four-month high) both helping.

Economic Wrap

US PPI fell 0.1% in June (vs +0.1% expected), for an annual pace of 1.9% in the headline measure and 1.8% in the core measure. Services fell 0.2% but can be volatile from month to month.

Fed dove Dudley expected further growth in employment and the economy, and eventually inflation to the 2% target. He attributed recent inflation sluggishness to one-offs.

Event Risk

NZ: Minor data for markets today: manufacturing PMI, July food prices, and possibly REINZ housing data.

Australia: RBA Governor Phillip Lowe testifies before the House of Representatives’ Standing Committee on Economics in Melbourne at 9:30AM (AEST).

US: Jul CPI is expected to rise 0.2% with core up 0.2% (Westpac forecasts 0.1%, 0.2%). Much of the slowdown in core inflation to 1.7%yr is due to transitory factors, most notably a sharp drop in wireless services. Core CPI ex-wireless was last at 2.1%yr. However, soft wage growth coinciding with a slowing in housing costs is a more structural dynamic."

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