Market wrap: stable amid thin trading conditions - Westpac

Imre Speizer, an analyst at Westpac, noted that markets were mostly stable amid thin trading conditions, the US and UK enjoying public holidays.

Key Quotes:

"Interest rates: The physical US treasury market was closed but 10yr treasury futures traded, the implied yield falling from 2.27% to 2.24%. Fed fund futures yields were little changed, pricing a June rate hike as an 85% chance.

Currencies: The US dollar index ranged sideways and is little changed on the day. EUR similarly ranged, between 1.1160 and 1.1190. USD/JPY ranged between 111.20 and 111.40. AUD ranged between 0.7425 and 0.7450. NZD probed slightly higher, from 0.7060 to 0.7090 (a two-month high) before slipping to 0.7050. AUD/NZD extended its multi-month decline to 1.0491 – a four-month low – before bouncing to 1.0554.

Economic Wrap:

No data to report.

FOMC non-voter Williams said the balance sheet would be reduced over the next five years, probably starting late this year, but that it would be a slow and “boring” process. He thought three hikes in 2017 made sense given the economy was a s close to the dual mandate goals “as we ever have been” and probably temporary softness in inflation.

ECB President Draghi said the economy still needs extraordinary support from monetary policy, including that via the ECB’s forward guidance. Wage inflation remained too soft to support a general inflation rise towards target. It sounds like the senior echelon is pushing back against a drastic change of stance at the forthcoming June meeting.

Event Risk

Australia: Apr dwelling approvals are forecasted by Westpac to rise 1.0% after Mar’s -13.4%. While approvals are clearly in a downturn, further hefty declines in the high rise segment looks to be limited. Meanwhile, the extent of softening in other segments and state specific factors are both uncertain.

NZ: Building permits in April will follow a 1.8% fall in M<arch but a 4.5% gain overall in the first quarter. The housing market is cooling but the shortage of houses in Auckland will persist for years to come.

Japan: Apr jobless rate is expected to stay low at 2.8%, but Apr household spending is expected to print another negative of -0.9%.

Euro Area: May economic confidence and the finalMay consumer confidence readings are anticipated to show that sentiment remains very robust.

US: Apr personal income is expected to rise 0.4%, consistent with previous solid growth, while personal spending is to be up 0.4%, bouncing from a soft Q1 weighed down by Jan and Feb. The PCE deflator is projected to increase 0.2%, leaving the annual rate at 1.7%yr. This sees core PCE lower to 1.5%yr from 1.6%yr in Mar, holding below the FOMC target. May consumer confidence is set to maintain strength after Apr’s 119.9. Fedspeak includes Brainard on the economy and policy."