Market wrap: US GDP beat sends US yields higher, but ... - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"Global market sentiment: US equities made fresh record highs, helped by strong company earnings, and the US dollar rose. US bond yields, in contrast, were weighed down by Catalonia’s declaration of independence plus Fed Chair candidate Powell’s increasing favourite status, events which dominated s strong GDP report.

Interest rates: US 10yr treasury yields initially firmed slightly from 2.46% to 2.48% (a seven-month high) in response to the GDP result, but quickly reversed after a headline from “Trump sources” claiming Powell was the preferred candidate for Fed Chair (betting markets priced him as a 75% chance, compared to Taylor at 15% and Yellen at 9%), and seemed to also be influenced by lower German bund yields (driven by news about Catalonian independence and Spain’s firm response). They ended the session at 2.41%. 2yr yields fell from 1.63% to 1.58%. Fed fund futures yields remained elevated, though, pricing the chance of a December rate hike at 97%.

Currencies: The US dollar index closed 0.3% higher, gapping to a three-month high. Underperformer EUR extended its multi-week decline to 1.1575 – a three-month low. USD/JPY fell from 114.45 to 113.65. AUD rose from 0.7625 (three-month low) to 0.7678, following the lead of US equities at record highs and oil (up 2% at a two-year high), rather than the Catalonian situation. Similarly, outperformer NZD bounced from 0.6818 (five-month low) to 0.6880. AUD/NZD fell from 1.1200 to 1.1140.

Economic Wrap

US GDP rose 3.0% (annualised) in Q3 (vs 2.6% expected). Net exports and inventories (1.1ppts) added more than expected, accounting for a good deal of the upside surprise relative to consensus. The consumer added a healthy +1.6ppts, while business investment added 0.5ppts. Government spending was disappointing. Consumer sentiment (Michigan Univ.) fell from 101.1 to 100.7 in its final version (as expected). The 5-10yr inflation expectations component rose from 2.4% to 2.5%."