The US Treasury bond yield back-up continued on Friday, but this time not led by Europe, where the 10yr Bund yield was up just 0.7bp to 0.373% in a holiday thinned European May Day .  US 2-year Notes added 2.8bps to 0.595, and the 10yr +8.2bps to 2.1135 % (its highest since early March).

Widening yield spreads helped the US dollar higher across the board, with DXY +0.74% to 95.3 and the broader BBDXY +0.6%. The GBP was Friday’s biggest loser amongst the majors (-1.32% to 1.5148) after a very week manufacturing PMI print (51.9 from a revised 54.4 in March and 54.6 expected). There are, evidently, also increasing pre-election nerves in front of this Thursday’s general election and where the polls continues to show Labour and Conservatives neck and neck, with neither partly likely to come close to be able to form an outright majority government.

NZD was also a big loser Friday for no obvious reason, losing over one percent to 0.7534, while AUD/USD lost 0.68% to 0.7851.  Losses here look to have been assisted by a reinforcement of last Thursday’s Sydney Morning Herald article by Peter Martin, in which he is quoted by a fellow Fairfax journalist saying ‘I can’t say how I got the story. It is accurate’.  Australian money markets pushed pricing for a 25-point rate cut tomorrow out to 77%, from 73% at Friday’s local close.  Elsewhere in FX, EUR/USD was -0.22% to 1.1199 and USD/JPY closed back on an ¥120 handle for the first time since 13 April (+0.64% to ¥120.15).

US equities made gains despite higher bond yields, the S&P500 ending +1.09% at 2108.3 (-0.4% on the week). The Dow was +1.03% to 18024 and NASDAQ +1.3% to 5005.

In commodities, iron ore slipped back again from its recent $60 high, -$0.95 to $56.18, though other metal were generally a touch firmer.  Gold lost $5.91 to $1178 while oil was also lower (Brent +$0.32 to $66.46).

Friday’s US data highlight was the April Manufacturing ISM. The headline at 51.5 disappointed, being unchanged from March versus 52.0 expected, but the detail was more encouraging.  New orders, that tend to lead the main index, rose to 53.5 from 51.8 (the highest since December 2014) while the export order reading rose to 51.5 from 47.5.  The production sub-index was also higher, 56.0 from 53.8, with offsets coming from employment and inventories, both lagging indicators. So all up a much better report than the raw headline suggested.

US Construction spending fell by 0.6% in March (+0.5%E, 0.0%P), prompting the Atlanta Fed to revise down its Q2 ‘GDPNow’ estimate to 0.8% from 0.9%.  The final University of Michigan consumer sentiment index was unrevised vs. the preliminary reading at 95.9 (96.0E).

Post the data, San Francisco Fed President John Williams said that while economic activity over the start of the year was disappointing, he had not yet changed his forecast for the year and that he could imagine that (good) constellation of data coming in before June or the meeting right after that. He also noted that inflation seemed to be firming.

We also had Cleveland Fed President Loretta Mester saying all scheduled meetings, including June, are ‘on the table’. She highlighted the importance of the next two payrolls reports.

On Sunday, CoreLogic RP Data’s weekend housing market auction/price stats. show a 7-city average auction clearance rate of 79%, the third highest on record, though prices across the 5 Capital cities were -0.4% on average, reducing the YTD rise to 3.6%.  Sydney’s clearance rate was 87.3% with prices +0.1% on the week and now 6.9% YTD. Melbourne cleared 81.3% of auctions, but prices were -1.0% on the week bringing YTD down to 3.8%.

Coming Up

Former British Prime Minister Harold Macmillan, when asked what as prime minister he most feared, once famously replied, ‘Events, dear boy, events’

Well after an action packed fortnight, key event risk continues to pile up, with Tuesday’s RBA decision and Friday’s US Employment report both very keenly anticipated and the cream of this week’s crop.  We also get local employment data on Thursday, preceded (Wednesday) by March monthly and quarterly real retail sales as well as the RBA Statement on Monetary Policy on Friday.

Market wise it may be quieter start to the week with both the UK and Japan on holiday. Locally we get Building Approvals as well as the TD-MI Inflation gauge and ANZ job ads.

Tonight, and of keen interest given the extreme day-to-volatility in Eurozone bond yields and the Euro at present, we’ll get the ‘flash’ manufacturing PMIs.

Overnight

On global stock markets, the S&P 500 was +1.10%. Bond markets saw US 10-years +8.18bp to 2.11%. On commodity markets, Brent crude oil -0.48% to $66.46, gold-0.7% to $1,175, iron ore -1.7% to $56.18. AUD is at 0.7829 and the range since Friday’s local close has been 0.7803 to 0.7901. Indicative range today 0.7795- 0.7870. (For more market prices, please see p.2 of the pdf).

For full analysis, download report:

• Markets Today: 4 May 2015 (PDF, 274KB)

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