It’s been an overnight session marked by a mild bounce in the US dollar into the end of the month, amid encouraging signs that tonight’s US GDP might yet be a mild overshoot, but against the ever-present continuing saga that is Washington and the Congress.  Some backtracking from yesterday’s over-reaction has played out too.

After testing well above the figure yesterday, the AUD lost momentum into the London session as the USD recovered some of its mojo, the AUD/USD trading back down below the figure, currently around its session lows at 0.7965/70.  Commodities have been mixed overnight, there’s been little change in base metals (nickel has been the exception, up another 0.9%), iron ore is off marginally, gold up by $8.70/oz to $1264.40, while oil has made some further gains.  The Euro and Sterling are also weaker on net this morning, the latter even after a stronger than expected UK CBI Retailers Survey reported a notable pick-up in sales.

WTI is up another $0.42, Brent a little more, WTI now with a 49 handle, now perhaps with a tad more optimism that OPEC’s job cutting supply could yet have a little more teeth.  Kuwait joining Saudi Arabia in pledging cuts with the UAE supported sentiment.  The decline in US inventories to the lowest level since January reported this week has also done the oil price no harm.  Structurally, longer term, there is a lot more to play out on the global supply and demand side, but for now it’s getting some support.

Taking some profits toward month end seemed to have played some part in stabilising USD sentiment, and the data reads overnight also added a modicum of support, kicking the dollar higher.  There is also the recognition that given the Fed has decided to push on with normalising its balance sheet and the ever so slight change to characterising inflation in yesterday’s Statement, it was a surprisingly large/overdone fall in the big dollar.  The Fed would not be signalling that it’s their intention to proceed with normalising the balance sheet if they were concerned about the outlook.

On the data front overnight, it was the combination of a somewhat better than expected durable goods orders report for June (upward revisions helped), a lower than expected advance US goods trade report, and higher than expected wholesale inventories adding to recent growth sentiment.  The Atlanta Fed increased its estimate of GDPNow for Q2 growth (out tonight) from 2.5% to 2.8%.  Better than expected inventories seems to have done the trick, whatever higher inventories might signal about sales.  US bond yields have ticked a little higher at the long end, almost steady for shorter term tenors.

If the dollar had taken its lead from developments in Washington, it would have been unhelpful, again.  The debate in the Senate over Obamacare continues with no clear end point in sight.  Full repeal is off the agenda and what form agreed legislation might take with now a myriad of as yet to be determined amendments is also unknown.  The market is also aware that repeal of Obamacare was intended to save money for the US Treasury, a revenue hole that doesn’t look likely to be filled anytime soon.

Adding to that hole, a statement overnight from the so-called “Big six” (House Speaker Ryan, Senate majority leader Mitch McConnell, White House Economic adviser Gary Cohn, Treasury Secretary Steve Mnuchin, Republican Ways and Means Committee Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch) have buried the border tax, a tax that was intended to raise $1tr in revenue over a decade to help finance tax cuts.

Coming up

That’s it pretty much for local data for this week.  (The Statistician’s producer prices report draws almost no market or analyst attention these days.)  Not that the market is expecting any fireworks out of this morning’s Japanese CPI report for June (and Tokyo’s for July), given the big moves in currencies in the latter stretch of this week, they are definitely worth a look.  The consensus expects either unchanged or marginally higher (by a tenth) annual headline and core inflation.  Japan also releases its monthly labour market and retail sales for June. The main European release to watch tonight is the preliminary July CPI report for Germany.

In the US, it’s a nice cross section of releases covering growth, employee cost inflation and the state of the consumer.  First up is the first cut of Q2 GDP, coming with benchmark revisions that could change the profile of growth in recent years.  Consensus growth was tipped at 2.5%, up from 1.4% in Q1, an expectation from last week that now looks to have upside risk.

The June quarter Employment Cost Index report will also be under the spotlight, growth expected to have downshifted from 0.8%, down to 0.6% where it was right through last year.  Despite the continued strong growth in payrolls there is only one analyst picking a repeat of 0.8%.  Then comes the UoM Consumer Sentiment late month update of its July survey.  Fed President Neel Kashkari is speaking.  He’s very much at the dovish end.

Overnight

On global stock markets, the S&P 500 was -0.10%. Bond markets saw US 10-years +2.31bp to 2.31%. In commodities, Brent crude oil +1.24% to $51.6, gold+0.7% to $1,259, iron ore -0.3% to $70.20, steam coal +0.1% to $87.30, met. coal +0.0% to $165.00. AUD is at 0.7967 and the range since yesterday 5pm Sydney time is 0.7957 to 0.8066.

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• Markets Today: 28 July 2107 (PDF, 1MB)

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