Markets exhale as Portuguese bank worries ease

Share Markets: 

Share markets recovered on Friday night as worries about a Portuguese bank eased.

Portugal's largest bank said that it was not at risk after financial troubles emerged in its parent company last Thursday.

However, it was a largely quiet session with little economic data released. The Dow and S&P500 indices both rose 0.2%, while the Nasdaq lifted 0.4%.

Interest Rates:

US treasuries were well bid, despite the lift in sentiment in share markets. Yields on 10-year treasury notes initially rose to a high of 2.54% but then fell later in the session to be 2 basis points lower at 2.52%. Geopolitical tensions in the Middle East were cited as support US treasuries.

Yields on Australian bonds (implied by futures) rose slightly overnight. Yields on 3-year bonds rose 1 basis point to 2.56% while 10-year bonds rose 2 basis points to 3.44%.

However, the easing of concerns about Portugal's largest bank saw yields on Portuguese 10-year bonds fell 12 basis points.

Foreign Exchange:

The US dollar strengthened slightly against a basket of currencies. Meanwhile, the Australian dollar weakened against the US dollar following comments from RBA Governor Stevens (see below for more details), although it was relatively unchanged against the euro and GBP. 

Commodities: 

The broad CRB commodity price index weakened. Oil prices continued to fall on increased output from Libya and limited disruptions from Iraq to date. Copper prices eased on rising inventories in China, while gold prices edged slightly higher.

Australia:

In a newspaper interview over the weekend, RBA Governor Stevens reiterated the view that the Australian dollar was too high, particularly given the US Federal Reserve is looking to change course. 

He said that "investors are maybe underestimating the probability of a material decline at some point, but I can't say when that might be".

Buyers might be suffering from some fatigue, after loan growth sprinted ahead in the second half of last year and in the early months of this year. 

The number of loans for owner occupiers was flat in May, after moderating by 0.2% in April.  Annual growth eased to 4.6% and is still well above the average of the past decade. 

Despite the pause, the number of new loans extended remains at a high level and at levels not seen since 2009.

Europe:

German CPI was confirmed at 1.0% in the year to June in the final estimate.

United States: 

There were some mixed messages from Fed officials on Friday. Philadelphia Fed president Plosser said that the Fed may be "closer than a lot of people think" to raising interest rates given recent inflation and labour force data.

In contrast, Atlanta Fed President Lockhart suggested that rate hikes were not likely until the second half of 2015. Plosser is currently a voting member this year, while Lockhart will be a voting member in 2015.


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