Risk appetite shrinks thanks to shaky political situation

Share Markets: 

The US stock market was little changed on Friday night.

The Dow edged up 0.1%, while the S&P 500 and the Nasdaq both slipped 0.1%. This followed solid gains earlier in the week.

The softness on Friday night reflected diminished risk appetites following the terrorist attack in Nice and military coup in Turkey.

Interest Rates: 

US government bond yields were little changed, edging higher at the long end, while slipping at the short end, resulting in a steeper yield curve. Investor sentiment was mixed on Friday night. 

US economic data released was stronger, while geopolitical concerns drove risk aversion.

Market pricing of the Fed funds rate firmed, implying a 20% chance of a rate hike in September, a 55% chance by December, and 100% by Oct 2017.

Fed centrist Lockhart cautioned not to expect a quick return to normal, while Bullard reiterated his dovish stance and Kashkari acknowledged the Fed had been wrong on the data for the past few years.

Foreign Exchange:

The US dollar index is up around 0.6%, with risk aversion and strong US economic data providing support for the dollar.

Sterling weakened after Bank of England's Chief Economist Haldane said the BoE needed "muscular" stimulus to boost the economy.

GBP/USD fell from 1.3481 to currently trade at 1.3239. EUR/USD fell from 1.1149 to trade around 1.1051 at the time of writing.

The US dollar, however, lost ground against the Yen, with USD/JPY falling from 106.32 on Friday morning, to currently trade at 105.43, with the safe-haven yen outperforming.

AUD/USD fell from 0.7676 on Friday morning, to 0.7596 at the time of writing, with diminished risk appetites weighing on the Aussie dollar.

NZD/USD fell from 0.7190 to a low of 0.7109 on Saturday morning. AUD/NZD hit a six-week high of 1.0703 on Friday afternoon, but fell to 1.0631 at the time of writing.

Commodities: 

Increased risk aversion weighed on commodity prices. The oil price defied the trend, edging higher on geopolitical concerns in Turkey.

Australia:

There were no major economic releases in Australia on Friday.

China:

GDP grew by 6.7% in the June quarter from a year earlier.  It beat market expectations for growth of 6.6%.  It also beat the government's growth target of at least 6.5% for the full year. 

In a bid to boost growth, China's central bank has flushed funds through the financial system, ramped up infrastructure spending and reduced red tape and corporate taxes. 

The Finance Ministry reported Friday that government spending rose 19.9% from a year earlier in June compared with a 17.6% increase in May.

The National Bureau of Statistics also said Friday that industrial output rose 6.2% in June from a year earlier, accelerating from 6.0% growth in May, while fixed-asset investment climbed 9.0% year-over-year for the January-to-June period, compared with an increase of 9.6% in the year's first five months. 

Retail sales grew 10.6% in June from a year earlier, accelerating from a 10.0% increase in May. 

The industrial production and retail figures were better than expected, while the investment figure was below expectations.

Europe:

Eurozone CPI was in line with expectations, lifting 0.2% in June, following a 0.4% increase in May. The increase in June was driven by an increase in the oil price.

For the year to June, CPI inflation rose 0.1%. Core CPI increased 0.9% in the year to June. Annual inflation remains well below the ECB's target of less than, but close to 2% inflation.

United Kingdom: 

Construction output was weaker than expected, falling 2.1% in May, after rising by 2.8% in April. For the year to May, construction output fell 1.9%.

United States:

US economic data was stronger on Friday night, suggesting economic growth will strengthen in Q2. 

Retail sales beat consensus expectations, rising 0.6% in June. The strength in retail sales was broad-based, with nine out of 10 spending categories gaining in June.

The pace of growth in retail sales in May was revised down to an increase of 0.2% (previously reported as a 0.5% increase).

Retail sales have increased for three consecutive months. For the year to June, retail sales have increased 2.7%. Excluding autos and gas, retail sales lifted 0.7% in June.

CPI inflation was softer than expected, rising 0.2% in June, maintaining its pace of growth from May. For the year to June, CPI rose 1.0%, an unchanged pace from the year to May.

Core CPI, which excludes food and energy prices, rose 2.3% in the year to June, up from 2.2% in the year to May.

Consumer sentiment fell to 89.5 in July, from 93.5 in June, according to the University of Michigan measure. Both the current conditions and the expectation component fell in July.

Industrial production rose 0.6% in June, after slipping 0.3% in May. This was the largest increase in 11 months. Capacity utilisation rose to 75.4% in June, from 74.9% in May.


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