Market and economic wrap: commodity currencies under performed - Westpac

Analysts at Westpac offered a market and economic wrap.

Key Quotes:

"Global market sentiment: 

Data was generally seen as benign. European stocks were bid throughout the day after effectively closing their Macron gaps (levels seen prior to Macron’s initial election victory in April). Oil slumped again (-3%) on lower OPEC production surveys and bulks consolidated recent gains (slipped). The GDT auction was softer than expected (-1.6%, WMP rose only +1.3%) but had little impact.

Interest rates: 

The potential of Trump’s new Chief of Staff Kelly providing some military style discipline, discussion of renewed tax initiatives and softer data lifted sentiment towards long bonds. Failure to sustain an early push above 2.30% saw US 10yr treasury yields retreat to the 2.25-2.26% area, but without any dynamism, as the curve flattened almost 3bps.

Currencies:  

Commodity currencies underperformed (led by NOK and RUB, but also CAD, AUD and NZD) against a generally firmer USD and DXY regained levels above 93.0, despite USD/JPY briefly dipping below 110.00. GBP (better PMI) managed to hold firm and, although it has definitely broken out of its range, CHF’s recent slide appears to have run its course and EUR/CHF retreated.

Economic Wrap

Eurozone PMI for July (56.6 vs flash 56.8) was dampened by lower periphery releases and set backs in final releases for core Europe. The moderation still leaves them solidly expansionary, but the froth is being blown off recent data outperformance. Eurozone 2Q GDP was also in line with consensus. 

US data were also on the soft side. Personal income and spending were disappointingly flat, but the core PCE deflator stabilised at 1.5%. However, June construction (notably public sector fell -5.4% in the absence of Trump initiatives) was decidedly weak and July ISM (56.3) retraced June’s spike higher.