Market Wrap: US dollar performed poorly - Westpac

Analysts at Westpac offered a market report for last week's closing US session.

Key Quotes:

"Global market sentiment: US bond yields nudged higher and the S&P500 made a record high, despite a mixed bag of economic data, but the US dollar performed poorly.
Interest rates: US 10yr yields initially rose overall from 2.18% to 2.20% at the close, fluctuating between 2.18% and 2.21% during the Ldn/NY session. 2yr yields rose from 1.36% to 1.38%. Fed fund futures yields firmed, pricing the chance of a December rate hike at 56% (51% previously).

Currencies: The US dollar index closed down 0.3% on the day. EUR rose from 1.1900 to 1.1987. Outperformer GBP jumnped from 1.3400 to 1.3616 after BoE dove Vlieghe’s hawkish comments. USD/JPY rose from 110.50 to 111.33, the yen the worst performer on the day. AUD closed unchanged on the day at around 0.8000, but did spike to 0.8021 after the disappointing US data. NZD performed well, rising from 0.7240 to 0.7310. AUD/NZD fell from 1.1060 to 1.0953, iron ore’s 2.5% fall to a one-month low one possible explanation.

Economic Wrap

US retail sales fell 0.2% in August (vs +0.1% expected), with the core measure falling 0.2% (vs +0-.2% expected). Hurricane Harvey’s disruptions are one likely explanation. Industrial production fell 0.9% in August (vs +0.1% expected). NY manufacturing activity (Empire) was stronger than expected at 24.4 (vs 18.0). Consumer sentiment (Michigan Un.) slipped from 96.8 to 95.3 (vs 95.0 expected), the 5-10yr inflation expectation component rising from 2.5% to 2.6%.

Event Risk

Australia: Aug new vehicle sales were last down 2.0%. Westpac expects another 0.5% drop based on FCAI figures but this still leaves annual sales at +2.0%.

China: Aug property prices have continued to show slowing tier 1 growth converging to tier 2 and 3 growth of around 10%yr.

UK: BoE Carney gives a speech at an IMF event followed by a conversation with Lagarde. The BoE surprised markets last week with a general hawkish tilt from all members. This speech may indicate whether Carney is in the stated ‘majority’ who see some withdrawal of stimulus in coming months assuming inflation and activity trends continue.

US: Sep NAHB housing market index is expected to maintain a strong level at 67, marginally lower than Aug’s 68."