Bond Sell Off Undermines Shares

Global bond yields continue to rise against a backdrop of rising US interest rates and a looming Greek tragedy. The adjustment to a post QE world is draining enthusiasm for shares, as Europe’s 1% gains faded during US trading. Although futures markets are pointing to gains for Asia Pacific shares at the opening, the green may turn to red over the local session, especially if yesterday’s heavy, ex-dividend selling of banks returns.

A stronger USD pushed commodity prices lower overnight, adding further weight to today’s action. However, this is offset to some extent by a lower AUD which may encourage international investors. BHP’s South 32 spin off may come under renewed pressure despite yesterday’s tick from investors. The combined value of the two companies outperformed the broader market and the materials sector, indicating a modest creation of value from the re-structure.

The release of the minutes for this month’s RBA meeting may be discounted by traders given last Friday’s statement on monetary policy, and a speech from Deputy Governor Lowe yesterday where he pointed out that the RBA rarely provides guidance after a rate move. A disappointing read on PPI in NZ may set the tone for the release of CPI and PPI data in the UK and Eurozone tonight, inducing further caution in trading today.

For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.