Analysts at Westpac offered a market wrap.
“Global market sentiment: US interest rates fell after a mixed bag of economic data, including GDP, although the dollar and equities were little changed. The US Administration averted a government shutdown by extending the current spending initiatives for one week.
Interest rates: US 10yr treasury yields initially rose from 2.28% to 2.33% but completely retraced after the data releases, led by GDP. 2yr yields similarly roundtripped from 1.26% to 1.29% and back. Fed fund futures yields were little changed, pricing a June rate hike as a 75% chance.
CFTC data shows 10yr note futures speculators flipped abruptly from a short position to the longest since 2008. Bets on Fed rate hikes haven’t been abandoned, though, with 3mth Eurodollar futures positioning remaining near record short.
Currencies: The US dollar index fell pre-data but rebounded thereafter for little net change. EUR rose from 1.0860 to 1.0947, helped by a strong inflation report, but retraced to 1.0883 in NY. USD/JPY rose from 111.10 to 111.71 before pulling back to 111.35 post-US data. AUD was volatile, initially falling from 0.7485 to 0.7448 and then rebounding sharply to 0.7491. NZD was fairly stable in a 0.6850-0.6880 range. AUD/NZD rose from 1.0860 to 1.0916.
US data wrap:
US data was mixed but left a stronger overall picture for the economy. Q1 GDP growth rose 0.7% annualised (vs 1.0% expected, but well above the Atlanta Fed’s model prediction of 0.2%). Almost all the slowdown was attributed to the consumer, adding just 0.2ppts to growth in the quarter after two quarters in a row above trend (adding more than 2ppts in each quarter). The most notable area of consumer weakness was in autos, where there was a sharp slowing, but given healthy labour market trends that can be looked through. The other area of weakness was inventories, which shaved 0.9ppts off growth in the quarter. It’s a relatively upbeat picture elsewhere: business investment added 1.1ppts to growth in the quarter, the strongest in several years and housing investment chipped in with a +0.5ppts contribution, also the fastest in several years.
The price deflators were more eye-catching, the overall DP price index up 2.3% (2.0% expected) while the employment cost index was punchy too: +0.8% (0.6% expected). Lumpy benefits accounted for some of the upside surprise but wages and salaries jumped 0.8%, the strongest in several years. The ECI is a vastly superior measure of wages than average hourly earnings and is now finally beginning to stir with signs of wages pressure.
The Chicago PMI rose from 57.7 to 58.3 (vs 56.2 expected). Consumer confidence (Michigan Univ.) was revised lower, from 98.0 to 97.0, although still above 96.9 in March.
Eurozone CPI inflation rose 1.9% yoy (vs 1.8% expected) in April from 1.5% in March. Core inflation jumped from 0.7% yoy to 1.2%. Price boosting Easter holidays were in April this year, rather than March last year.”