Market wrap: markets remained upbeat - Westpac

Analysts at Westpac explained that markets remained upbeat in the wake of Friday’s solid US payrolls report. 

Key Quotes:

"European markets were mostly upbeat (Italy’s -0.5% stands out) while in the US, the S&P 500 added 0.5% on top of Friday’s gains and the Nasdaq Composite reached a record high close. News and data flow was relatively light (see below).

The best performer was the AUD, extending the rally which was partly fuelled by the upside surprises on Australian Apr retail sales and Q1 company profits and inventories, data which places upwards biases on economists’ forecasts of GDP due tomorrow. Having started the week around 0.7560, AUD/USD was up to 0.7635 by the Sydney close, extending to 0.7666 in London trade, a high since 23 April. It faded only slightly in NY trade.

NZD/USD also had a good day, though not quite as strong as AUD, rising a net 50 pips to 0.7030, with a high of 0.7048. AUD/NZD rose 0.4% over the day, to 1.0880.

EUR/USD made a round trip from 1.1680 to 1.1745 and back. GBP/USD underperformed, slipping from 1.3380 to 1.3300/10, despite Bank of England’s Tenreyro saying that Q1 GDP weakness was probably temporary and that domestic inflation pressures were building. The safe-haven Japanese yen underperformed, USD/JPY bouncing from under 109.40 to 109.85.

Supporting USD/JPY was the rise in the US 10yr treasury yield from 2.90% to 2.94%, while 2yr yields rose from 2.48% to 2.51%. Fed fund futures yields also rose, predicting a rate hike in June and another by year end.

Data had little or no market impact. The UK May construction survey was unchanged at 52.5 (exp. 52.0) but the details showed concerning weakness in future activity with current activity holding up due to delayed building due to weather impacts in Q1. US April factory orders pulled back -0.8% m/m, a little softer than expected but with the key ex-transport measure up 0.4%."