Market wrap: US earnings make for risk-on - Westpac

Analysts at Westpac offered their review of the US and European session noting that US and European equities rallied with help from ongoing strong US corporate earnings reports. 

Key Quotes:

"UK Feb unemployment dropped to a 43 year low of 4.2% (f/c steady at 4.3%). Employment rose 55k (3m/3m) and average weekly earnings ex-bonus rose 2.8% y/y (both as expected), though the headline wage rise of 2.8%y/y was below the market forecast of 3.0% y/y. This seemed to be the catalyst for GBP/USD slipping from a post-Brexit high of 1.4377 to a NY afternoon low of 1.4283.

The April ZEW survey of investors’ economic expectations for Germany (-8.2 vs exp -1.0, prev 5.1) and Eurozone (1.9, prev 13.4) pulled back more severely than expected, though current conditions at 87.9 were in line (88.0 from 90.7). The slowdown in core Eurozone survey and activity data is now exceeding anticipated mild moderation and will increase attention on next week’s business sentiment surveys.

EUR/USD rallied to 1.2415 in the London morning but slipped after the ZEW data to be about flat on the day. USD/JPY ranged sideways between roughly 106.90 and 107.20. AUD/USD traded a 30 pip range, peaking at 0.7791 when EUR and GBP were also cresting. The kiwi underperformed, NZD/USD -0.3% on the day so that AUD/NZD rose 0.3 cents to 1.0585.

Despite the rise in equities, longer-term US treasury yields fell fractionally, although shorter-term yields did rise. The US 10yr treasury yield edged down to 2.81%, while 2yr yields extended a multi-year uptrend to almost 2.40% - the highest since 2008. Fed fund futures yields continued to price the next rate hike in June around a 90% chance (Bloomberg calculations).

Fed commentary came from centrist Williams, who expected the Fed to continue its gradual tightening, hawk Harker, who thought the labour market was tight; and dove Evans, who saw the economy as “firing on all cylinders” and expected the Fed to gradually raise rates over the next two years."