Originally published by Rivkin Securities
The US Dollar Index edged modestly higher on Monday as treasury yields rose on Monday despite disappointing personal income, spending and inflation data. Personal income (MoM Mar) rose +0.2% against estimates for +0.3%, personal spending was unchanged missing estimates for +0.2%. Core personal consumption expenditure, the Fed’s preferred gauge of inflation, declined (MoM Mar) -0.1% as forecast from 0.2% previous but rose +1.6% year-on-year in line with estimates but down from +1.8% prior. The dip is seen as temporary due to recent weakness in automobiles and Fed fund futures still imply a 67% chance of a rate hike when the FOMC meet on June 14th.
Elsewhere the ISM manufacturing survey missed estimates, rising 54.8 (MoM Apr) compared with 57.2 previously and estimates for 56.5 however this follows 2.5 year highs in February and readings about 50 show expansion.
US earnings remain in focus with 60% of S&P 500 companies now having reported earnings. Of those 76.9% have reported earnings above estimates which is higher than the long-term average of 64% and past four quarter average of 71%. Earnings are now expected to increase +13.7% year-on-year, up from +10.1% originally estimated.
The two-year US treasury yield was little changed at +1.2779% while the ten and 30-year yields rose +4 and +5 basis points respectively with the US dollar index up modestly by +0.08%. Both the S&P500 and Nasdaq 100 rose +0.17% and +0.83% respectively with risk sentiment also boosted by the announcement on Monday of a US government funding bill through until September relieving concerns of a government shutdown.
Oil prices dropped extending a two and a half week decline to over 8% as WTI and Brent crude weakened -0.99% and -0.58% respectively as Libya’s oil production increased as oil production came back on line. The first chart below shows oil prices which have given back about half of the gains following the November 2016 agreement by OPEC to cut production. Production cuts are due to expire in two months at the end of June and at this stage with prices struggling to break higher the odds are tilted towards an extension of those cuts.
The RBA will meet today to discuss monetary policy with a decision released at 2:30pm AEDT. It has been fairly well advertised the RBA continues to remain between a rock and a hard place as it attempts to manage rising house markets in Sydney and Melbourne against below target inflation and weaker wage growth. While last week’s inflation figures offered some encouragement, the general consensus is the RBA is unlikely to act on monetary policy in either direction over the coming months.
Locally the S&P/ASX 200 finished +0.55% higher on Monday and this morning we can expect a modest extension of those gains with ASX SPI200 futures up +9 points in overnight trading.
Data releases:
· Bank of Japan Monetary Policy Minutes (Mar 15-16 Meeting) 9:50am AEDT
· Japanese Nikkei Services & Composite PMI (MoM Apr) 10:30am AEDT
· Chinese Caixin Manufacturing PMI (MoM Apr) 11:45am AEDT
· RBA Monetary Policy Decision 2:30pm AEDT
· Euro-zone Manufacturing PMI (MoM Apr) 6:00pm AEDT
· Euro-zone Unemployment (MoM Mar) 7:00pm AEDT
Chart 1 – WTI (Purple) & Brent (Blue) Crude Oil
