Originally published by Rivkin Securities
US stock markets continue their rapid recovery from the sell-off of the prior week. The Dow Jones Industrial Average is now back above 25,000 but is still 5.3% below the peak from late January. Both the Dow and S&P 500 rose by 1.2% last night despite a weak start to the session. A slew of US economic data was released including PPI which was up 0.4% as expected although core PPI was 0.2% higher than anticipated at 0.4%. The stronger than expected number provides further evidence that inflation is returning to the US as producer prices are seen as a leading indicator for consumer prices. Later in the session, industrial production data was released which showed that industrial production for January dropped by 0.1% compared to an expected rise of 0.4%. This exemplifies the dichotomy of economic data recently where some data points to a strong economy while others show signs of continuing weakness.
The Atlanta Fed GDP now model has undergone several downward revisions recently and now predicts a first quarter GDP of 3.2%. This was revised down from the 5.4% that was predicted in January as a result of some weaker than expected economic data that has come out between then and now.
US bond yields held steady overnight with the 10-year yield currently sitting at 2.9%. Most market watchers expect the yield to break through 3.0% at some point in the not too distant future. The Australian 10-year yield has been constantly moving up just ahead of the US yield and is currently sitting at 2.92%. So far banks haven’t responded to the rising rates for their mortgage products although it seems likely that this will happen if yields continue to rise. While the central bank can control short-term rates (in fact, they control the overnight interest rate), they have much more limited control over long term rates. This is the reason that longer term bond yields can rise independently from the official interest rate.
Data Releases:
- UK Retail Sales 8:30pm AEDT