The AUD did test 0.7970 but was unable to hold that level and now sits back at 0.7940.  In a similar vein, USD/CAD and USD/NOK did test lower levels, but have retraced despite a sizeable move up in oil prices, now by $2.20/bbl, +4½-5% for WTI and Brent, Brent pushing through $50/bbl.

In the past hour, RBNZ Assistant Governor and Chief Economist John McDermott has been speaking and has not been heavy-handed at all in talking down the NZD.  Instead he spoke of the neutral interest rate now being 3.5%, that it’s falling, that core inflation is running at 1.4%, symptomatic of moderate inflation pressures.  The NZD has tried to push a little lower, but the initial market reaction was marginal at most and since more than fully unwound.

The USD has had a choppy night, initially seeing some selling (Euro support after yet another stellar German Ifo Survey) but recovering after better consumer confidence and in the past two hours a US procedural Senate vote (51-50) to advance the health care debate.  The press is reporting that a vote on the Senate health bill could come later this week.  Timing, whether there will be a vote, and what might be voted on are all still to play for, even talk of a “skinny repeal” bill.

Oil prices pushed higher overnight, Saudi Oil Minister Kalid Al-Falih pledging to cut export shipments in August to 6mbpd, down 1mbpd from last August, and that the Saudis won’t act along.  Energy and material stocks in the US have had a good night, up 1.26% and 1.16% respectively, with Dr Copper performing nearly as strongly as oil, up 3.29% on the LME, other base metals also performing strongly, as did iron ore and steel prices yesterday in China.  Caterpillar’s results also shot the lights out, its shares up 5.8%.

Global bond yields are higher across the board (Germany 10y bunds by 5.8 bps and US 10s by 7.3), not hurt by strong readings from the German Ifo Survey and the Conference Board’s measure of Consumer Confidence, both beating street expectations. It’s been like a broken record reporting on accelerating German business conditions consistently for a year now and at record highs (at least since German unification).

Meanwhile the IMF urged the ECB to maintain its very stimulatory policy, seemingly having some impact in holding back the Euro during the session.  Not to be outdone, US Consumers were not only more chipper in July but reported a further improvement in the job market, the net jobs plentiful index now at its highest level since 2001, some more comfort on perceptions of the jobs market from the street level for the Fed.

Coming up

After NZ trade figures at 8.45 AEDT (little market impact expected), two market sensitive events loom, first the June quarter CPI and just after 1pm RBA Governor Lowe is speaking on “The Labour Market and Monetary Policy”.  Could there be a more market-relevant topic?  The Bank’s view of only gradual increases in underlying inflation over the next year or two is well known.  Today’s CPI figures we expect will likely reveal almost unchanged headline and core inflation rates, and bang on the RBA’s May SoMP forecasts of 2% for headline and 1¾% for underlying inflation.  We wrote in our preview note yesterday that given Lowe’s speech comes just 90 mins after the CPI, it’ll likely take an “out of the box” print to shake up the market, the market likely more sensitive to a higher print.

Intrinsic to the inflation outlook, the Aussie and bonds is the outlook for the labour market and how this plays out for wages growth.  The structural adjustment after the mining investment boom now seems to have substantially run its course, a point that perhaps Lowe might well expand on today.  Employment is already beginning to trend higher in Qld and WA with improving mining confidence and activity.  Against that, we’ve also heard how a straightforward use of the unemployment rate to assess spare capacity and thus prospective wages growth is insufficient given high underemployment.  That might also come under the microscope giving some balance and push back on rate pricing currently in the short end of the curve and indeed for the Aussie.  We wouldn’t be surprised to see the global context of low inflation and wages growth get more exposure too.  Notwithstanding the RBA’s patience to not indicate any haste in moving to a tightening bias, let alone hike, the economy’s momentum has only been adding to the RBA’s confidence in its “gradual return of inflation” forecasts.  There is also a speech from BoJ Deputy Governor Nakaso at 11.30 and a press conference 2½ hours later.

Tonight, it’ll be the focus on the first cut of UK GDP and midway through the US session the FOMC statement.  Will the FOMC’s statement change their formal expectation to start normalising the balance sheet from “this year” to Yellen’s press conference “relatively soon” elucidation?  If so, that would indicate continuing confidence in the economy. And second, whether their words on inflation indicate any prevarication over getting back to 2% “over the medium term”.

Overnight

On global stock markets, the S&P 500 was +0.29%. Bond markets saw US 10-years +7.12bp to 2.33%. In commodities, Brent crude oil +3.33% to $50.22, gold-0.3% to $1,250, iron ore +2.4% to $69.48, steam coal +0.5% to $86.80, met. coal +1.2% to $166.00. AUD is at 0.7937 and the range since yesterday 5pm Sydney time is 0.7901 to 0.797.

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• Markets Today: 26 July 2107 (PDF, 1MB)

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