News of the (now failed) attempted military coup attempt in Turkey started filtering though about half an hour before the US stock market close, too late to have much impact on cash indices which closed fairly flat but early enough to see the S&P500 futures lose 0.4% after the NYSE close. Earlier it was hard to discern much by way of market impact to the Nice terrorist atrocity, sickening as it is. Treasury yields retraced much of their post-US data-led gains on the Turkey news (2s actually closing lower on the day) while the dollar received a safe haven boost having earlier been supported by stronger than expected US data and higher yields. Once again the Yen displayed its credentials as the pre-eminent safe-haven currency, USD/JPY tumbling back down through Y105 to close 0.45% stronger on the day at Y104.88.  The Turkish Lire lost over 4% in late NY trade with EM currencies hit more broadly albeit to a lesser extent (e.g. ZAR -2.5%, MXN -1.4%, RUB -1.2% – Asia EM FX had pretty much closed beforehand).

The S&P 500 finished -0.1% at 2164.7, the Dow +0.05% and NASDAQ -0.1%. Earlier the Eurostoxx 50 finished -0.15% with the Dax just -0.01%. The VIX only moved from 12.4 to 12.7 in the last half hour of trade.

In bonds US 10s had rallied from 1.53% to 1.6% in the wake of the US data, only to retrace to 1.55% in the immediate aftermath of the coup news. They closed at 1.552%, 1.6bps higher on the day. 2s were around 0.665% into the data, jumped to 0.71% after and then tumbled back to 0.6674% by the close, 0.5bps down on 24 hours earlier.

In G10 FX, the JPY (+0.45%) fared best and the NOK worse (-1.43%) but GBP, NZD and SEK all lost over 1%, Sterling in part on a speech from Bank of England chief economist Andrew Haldane in which he said, “Given the scale of insurance required, a package of mutually-complementary monetary policy easing measures is likely to be necessary… This monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month”.

EUR/USD weakness (-0.76% to 1.1035) trumped JPY strength to drive the DXY up 0.63% to 96.68 with the broader BBDXY up a smaller 0.39%. ADXY finished 0.27% lower. AUD/USD was down 0.71% to 0.7578, USD/NZD -1.15% to 0.7116 and GBP/USD -1.13% to 1.3192.

Commodities saw gold down $4.80 at $1,332.20, WTI crude +30 cents to $45.95 and Brent +70 cents to $48.11. The LMEX index ended 0.47% lower and iron ore unchanged at $58.42 (62% fines China import price).

As for the US data, US June retail sales rose by a strong +0.6% (0.1%E, 0.2%P revised from +0.5%). Ex-autos, sales were +0.7% (0.4%E, 0.4%P). US June industrial production +0.6% (0.3%E, -0.3%P revised from -0.4%).  Manufacturing +0.4% (0.3%E, -0.3%P revised from -0.4% with all the strength attributed to autos). Mining turned up slightly last month, while utilities output was boosted by hot weather boosting demand for air conditioning above seasonal norms.

US June CPI headline came in below expectations at 0.2% (0.3%E, 0.2%P), but the as-expected core reading of 0.2% saw y/y growth rising to 2.3% (2.2%E, 2.2%P).

The Empire (NY State) manufacturing index fell to 0.55 (5.0E, 6.01P) while the University of Michigan preliminary consumer sentiment index fell to 89.5 (93.5E, 93.5P), with blame laid at the floor of the earlier Brexit vote. But the closely watched 5-10 year inflation expectations reading rose to 2.8% from 2.6% (1yr unchanged at 2.6%).

CoreLogic RP Data weekend auction summary shows the combined capital cities clearance rate at 71.6% up from 70.6 the previous week. Sydney cleared 76.2% versus a final 76.5% previously and Melbourne 77.3% up from 71.8%.

Coming Up

In early Monday FX trade, we have already seen much of Friday’s late NY day moves reversed, USD/JPY back comfortably on a ¥105 handle and AUD and NZD both up over a quarter of a percent.  In the absence of another near term geopolitical shock (and sadly news of more shootings of police officers, this time in Baton Rouge, doesn’t appear to qualify) it’s likely that Friday’s strong US data can continue to reverberate. This is all the more so given it’s a quiet week ahead for US economic news and with Fed speakers in lock-down ahead of next week’s FOMC meeting.

Not much to see in Australian ahead of the all-important Q2 CPI report next Wednesday, the main point of interest likely to be tomorrow’s July RBA meeting minutes. New Zealand has CPI today and which is important.  July preliminary PMIs are the main draw in Europe and which will include a special post-Brexit vote one for the UK. Also it’s the first ECB meeting since the Brexit vote.

Overnight

On global stock markets, the S&P 500 was +0.43%. Bond markets saw US 10-years +1.53bp to 1.55%. In commodities, Brent crude oil +2.92% to $47.61, gold-1.2% to $1,327, iron ore -1.2% to $58.42. AUD is at 0.7597 and the range since Friday 5pm Sydney time is 0.7564 to 0.7657

For full analysis, download report:

•  Markets Today:  18 July 2016 (PDF, 88kb)

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