The rise in oil prices overnight were not enough to prevent retail driven decline in US equity markets. The US dollar was weaker across the board and a solid 10y US Treasury auction amid a cautious mood helped core global yields move lower.

Disappointing earnings result from Macy’s and Walt Disney triggered a selloff in the US consumer discretionary sector and across the Atlantic sentiment was also soured by fall in bank shares and disappointing earnings reports from JCDecaux.

Oil prices were higher overnight (Brent +4.17% and WTI 3.16%) with WTI making a new year to date high ($46.08) following news of a drop in the US stock piles. EIA reported a drop of 3.4m barrels in the week ending May 6 compared to market expectations for a jump of 0.4-0.7m. Commodity prices in general were also boosted by the retreat in the USD. Gold was up 1%%, copper and iron ore gained 0.6% and the GS metal index closed 1.0% higher.

The lack of key data releases, weaker risk appetite and the lure of profit taking after six consecutive days of gains were the most apparent drivers for a softer USD dollar overnight. The DXY index is 0.5% weaker relative to 24 hours ago with all G10 currencies outperforming the USD. The jump in oil prices boosted commodity currencies and NZD is at the top of the leader board following yesterday’s RBNZ’s Financial Stability Review which did not announce new macro prudential measures. USD/JPY is back below the ¥109 mark after a solid run in recent days and the EUR/USD is up 0.5% trading back above 1.14.

While core global yields were lower overnight amid a lack of risk appetite. The move lower in 10y US treasury yields was also boosted by a solid 10y US auction. Although the 2.68 bid to cover ratio was lower relative to recent auctions (suggesting weaker demand), the auction yield was lower than the 1.731 % anticipated by traders and at 73.5% indirect bidders (a gauge of foreign demand) was the highest on record.

On other news BoC Deputy Governor hosed down expectations of further stimulatory polices, noting that the BoC doesn’t need to open up its policy “toolkit” while the most likely outcome is a continued progress in global recovery seen already in the US and Europe.

Coming Up

RBA assistant Governor Edy is speaking at a cards and payments Conference in Melbourne this morning (9:00am AEST), but given the subject of the conference we suspect there are unlikely to be any interesting headlines.

After the RBA decision to cut the cash rate to 1.75% and the low inflation outlook revealed in the Statement on Monetary Policy (SoMP) last week, the May consumer inflation expectation print due for release at 11:00am AEST could garner more attention than usual.

In the SoMP, the RBA noted that “inflation expectations will be persistently lower for longer than currently anticipated, given the forecast of a period of low inflation, which could weigh on wage outcome” and if so this will also weigh on inflation. On this point, we would note that although consumer inflation expectations have remained close to the lower end of historical ranges, unlike other market measures they are not (yet?) close to historical lows.

Looking at offshore markets, this morning the BoJ will release its summary from its April meeting. Recall that in April many participants (including yours truly) were blindsided by the BoJ decision to remain on hold, even though the Bank downgraded its growth and inflation outlook as expected. The summary should hopefully shed some light on how close the BoJ was from easing. BoJ Deputy Governor Nakaso speaks this afternoon and as a close ally to Koruda, it will be interesting to see if he makes any comments on monetary policy.

The Eurozone prints its industrial production for March and the BoE makes its rate announcement and publishes its inflation report. While a no change From the BoE is expected, attention will be given to how quickly the Bank thinks the economy will emerge from its current soft patch. As for the inflation report, given the assumptions made in the forecast, the Brexit outcome has the potential to make the inflation outlook redundant.

The US releases its weekly jobless claims and the Fed roadshow continues with Fed Mester, Rosengren and George all scheduled to speak.

Overnight

On global stock markets, the S&P 500 was -1.00%. Bond markets saw US 10-years -2.63bp to 1.74%. On commodity markets, Brent crude oil +4.11% to $47.39, gold+1.1% to $1,279, iron ore +0.6% to $55.57. AUD is at 0.7374 and the range was 0.7336 to 0.7402.

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• Markets Today: 11 May 2016 (PDF, 1MB)

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