To the scoreboard:
Dow: 21,479.27 +129.64 (+0.61%)
S&P 500: 2,449.01 +5.60 (+0.23%)
AUD/USD: 0.7655 -0.0033 (-0.42%)
ASX200 SPI futures (Sept contracts): 5,670 (+35)
Iron ore benchmark 62% fines: $US64.29 (-1%)
1. US dollar turns the corner: The greenback strengthened against all major currencies, with some positive news on the data front. ISM manufacturing PMIs easily beat expectations (57.8 against 55.2 forecast) and hit their highest reading in three years. Perhaps more importantly the Citi economic surprise index — a measure of key economic data — jumped by 9 points to -63.3. Furthermore, technical indicators pointed to a USD rally after last week’s central bank-driven selloff, with the USD trading near the bottom of its technical range against most major currencies.
2. Manufacturing solid: In addition to the US, it was a solid run of manufacturing data globally to kick of a new month. That lends weight to the argument that the global economy is still in reasonable health. Australian PMI data from both Ai Group and a new reading introduced by the Commonwealth Bank showed expansion. In Europe, German manufacturing climbed to a 6-year high, but manufacturing in the UK contracted. Caixin manufacturing data for China was steady, while ISH Markit data showed that manufacturing stagnated across South-East Asia.
3: Bond market winds starting to blow: Stronger US economic data meant that selling continued in US treasuries, with yields on 10-year notes now out to 2.35%. The spread between US 2-years and 10-years has widened since last week as bond markets try to position for future moves by the US Federal Reserve. On the more extreme end of bond market movements, the yield on German 10-year notes has almost doubled since last week. CME’s Fedwatch tool has currently assigned a 50.4% probability of a rate increase by the US Fed in December.
4. Global markets wrap: Stocks in the US, UK and Europe were all up by more than 1%, led by financials which benefited from rising bond yields. The recent weakness in US tech stocks continued, with the NASDAQ falling by 0.5%. Trading volumes were relatively low across all asset classes, with a quiet start to the week in the US ahead of the July 4 holiday. The ASX200 is likely to open higher, with futures traders predicting that it will bounce back from yesterday’s fall with a solid global lead.
5. Data today: Domestically, today is the biggest day on the data calendar this week. The ABS releases retail sales data for June at 11.30am AEST, with markets looking for a second straight month of growth after a surprisingly good result in May. The headline data point is at 2.30pm AEST, when the RBA announces its interest rate decision. As usual, Business Insider’s David Scutt has provided a comprehensive preview of the announcement here. At 9.30am AEST, ANZ releases its weekly consumer confidence data.
6. Eight straight for oil: Following eight consecutive daily price rises, which is a 5-year record, benchmark crude is now just below $US50 at $49.46 a barrel. A fall in the US oil rig count has given prices short-term momentum, as the market tries to find a balance between the competing forces of supply and demand. Iron ore was mixed, with benchmark prices falling but higher and lower grade ores posting strong gains. Gold fell by 1.9% to below $1,220 an ounce as rising bond yields and a stronger US dollar keep downward pressure on the precious metal.
Bonus item: For the Bitcoin fans, this post summarises a research note from Goldman Sachs which suggests that Bitcoin could climb higher than $US4,000.
I’m Sam Jacobs and you can find me on Twitter @Mr_SamJacobs.