Well if Mr Draghi says it is so, we’d better get used to it. Bond yields, particularly in Germany, continued their rise yesterday; despite the ECB’s Draghi telling us that they are committed to their QE program. Seemingly unconcerned about higher yields (and yes, they are implementing QE to lower yields…) he noted that if interest rates are so low, asset prices are going to be more volatile. So there.

With more positive news about Greece inching towards a deal with its creditors, risk sentiment was modestly positive, allowing equities to move higher and rate differentials to “carry” the day in FX – the EUR outperformed. In FX, it is all about the EUR at present, with the moves in bund yields and the increasing focus on Greece. This left the USD being dictated by what was happening on the other side of the ditch, rather than its own information.

Commodity prices didn’t follow the script, and were lower mostly across the board. That helped CAD and the NZD to be the underperformers in the G10 FX world; but AUD managed to scrape a small positive against the USD- helped by yesterday’s strong GDP outcome.

It’s a fine balance; better global growth is positive for the earnings outlook and allows yields to rise; but too much and too fast runs the risk of quashing the burgeoning move to something more akin to normal. While Mr Draghi might be complacent; many investors are not. He is right though, this breeds volatility.

EUR, and yields, were supported by the ECB’s press conference as (apart from the volatility comments) there was a slight upgrade to 2015 CPI forecasts, and they noted that inflation “bottomed” at the beginning of 2015. And the fact that growth was not better was blamed on trade i.e. a stronger EUR. Given this, the market was not convinced at all by his reassurances that they will implement their full QE program. Maybe the ECB should talk to their Fed counterparts about the role forward guidance and expectations play in a “successful” QE implementation.

Services PMI’s were released and somewhat surprising in both the US and the UK – they were weak. Yesterday’s China data was also a little softer. That added to the USD’s underperformance but didn’t get much attention.

Also in the US, the trade data was much better than expected. Some of this was due to the port strikes but overall, it adds another positive to the Q2 GDP outlook. Exports were up 1% and imports down 3.3% leaving the best trade deficit. Markets ignored it, but that’s not unusual.

The Fed’s Beige Book was somewhat positive, with seven of 12 districts reporting modest to moderate growth. The Fed’s Evan’s wasn’t so upbeat, but he is a known dove.

AU GDP was stronger than expected yesterday at 0.9%qoqA (0.7E, 0.5P); that proved supportive for the AUD. After that outcome, NAB’s economics team noted that there is likely a very high hurdle for any further near-term easing by the RBA.

Coming Up

We get a little lull in the data today, with a whole lot less to absorb before the flurry of US payrolls hits tomorrow.

Domestically, we get the more up-to-date (than GDP inputs) partial inputs of retail sales and trade data. Consumer confidence has improved but that was after the April data. The risks for markets, after the moves in recent days and yesterday’s strong GDP are for a weak outcome (NAB forecasts 0.1%, market 0.3%). The trade balance is expected to deteriorate, which wouldn’t help.

Offshore, the Bank of England should keep everything unchanged, which provides no new information. Meanwhile, all eyes remain on the Greek negotiations.

It is all quiet in the US. The vacuum may get markets consolidating – reversing the big moves of recent days.

Overnight

On global stock markets, the S&P 500 was +0.20%. Bond markets saw US 10-years +10.36bp to 2.37%. On commodity markets, Brent crude oil -2.53% to $63.83, gold-0.8% to $1,185, iron ore  +0.5% to $63.33. AUD is at 0.7788 and the range was 0.7752 to 0.7819. (For more market prices, please see p.2 of the pdf)

• US trade -40.9A, -44E, -50.6P
• US ISM non-manuf 55.7A, 57E, 57.8P
• US ADP 201kA, 200kE, 165kP
• UK Markit services PMI 56.5A, 59.2E, 59.5P

For full analysis, download report:

• Markets Today: 4 June 2015 (PDF, 333KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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