Originally published by Rivkin Securities
The US Dollar Index rose with treasury yields on Wednesday as the FOMC left rates on hold as widely expected while acknowledging the slowdown in Q1 GDP was likely temporary. In the text accompanying the decision the committee noted that the labour market has continued to strengthen, referring to job gains as “solid” and that the fundamentals underpinning household consumption remained solid. The view on the labour market was supported by the private ADP employment (MoM Apr) which was estimated at 177,000 slightly higher than the 175,000 forecast and comes ahead of Friday’s non-farm payroll data where it is estimated 190,000 jobs were added in April.
The probability of a hike at the next meeting on June 13-14 rose to 71.6% from 67.6% the day before. The US dollar index rose +0.40% as both the two and 10-year treasury yields rose +3.6 and +2.6 basis points respectively. That helped financials on the S&P500 perform with the sector up +0.34% although the broader index was -0.13% lower as basic materials weighed -0.98%. Basic materials underperformed as high grade copper futures dropped -4.53% shown on the first chart below as inventories rose and demand from China may soften.
Oil prices bounced in what may have been some short covering following heavy selling over the past fortnight and gasoline inventories rose less than anticipated. Helping support the price was a lower than expected increase in gasoline inventories which rose 191,000 significantly less than the 1 million forecast as the US enters a seasonal period known as driving season which typically sees stronger demand by refiners, gasoline futures rose +1.33%. Meanwhile US crude oil inventories (April 28th) decreased by 930,000 against estimates for a 3 million barrel decline, inventories at Cushing Oklahoma (the delivery point for WTI futures) decreased 728,000 against expectations for 900,000.
The euro declined -0.38% as the dollar strengthened despite GDP data that showed the Euro-zone economy grew at an annualised +1.7% during the first quarter and German unemployment remained at the lowest levels since 1990 at 5.8%. Producer prices in the Euro-zone eased slightly to grow at +3.9% (YoY Mar) compared with +4.5% previously, producer prices are a leading indication of future inflation. Despite the slowdown in prices pressures continue to grow across the Euro-zone, supported by recent PMI reports, an encouraging sign for the ECB.
Locally the S&P/ASX 200 index declined -0.98% and this morning we can expected another softer start to trading with ASX SPI200 futures down a further 6 points or -0.10% in overnight trading.
Data releases:
· Australian Trade Balance (MoM Mar) 11:30am AEDT
· Chinese Caixin Services & Composite PMI (MoM Apr) 11:45am AEDT
· Euro-zone Services & Composite PMI (MoM Apr) 6:00pm AEDT
· UK Services & Composite PMI (MoM Apr) 6:30pm AEDT
· Euro-zone Retail Sales (MoM & YoY Mar) 7:00pm AEDT
· US Durable Goods Orders (MoM Mar) 12:00am AEDT
Chart 1 – Copper Futures
Source: Rivkin