Commodities and bond yields keep investors nervous

The stock market looks set for a nervous open this morning as investors react to lower commodity prices and keep a watching brief on rising bond yields.

The good news is bad news theme returned to international markets in the form of a strong bounce in US housing starts during April. It appears that housing starts have emerged from their winter hibernation and are again trending at above 1 million pa. This makes a welcome relief from the run of generally soft data on the US economy for March and April.

However, the good news on housing starts brings with it the prospect of rising interest rates. US bond yields continued to edge higher and whether or not Australian yields follow suit today is likely to determine whether local bank stocks continue to fall. Both Commonwealth Bank shares and Australian 10 year bonds are close to the potential resistance of their respective 200 day moving averages. A conclusive move above 3% and the 200 day average by the bond yield could well see CBA fail at this resistance, with lower prices in store. On the other hand investors in “yield stocks” are likely to be encouraged if bond yields show signs of respecting resistance around current levels.

Commodities were a casualty of the stronger US Dollar overnight and both the materials and energy sectors are likely to be down in early trading today. This is likely put the ASX 200 index under pressure this morning unless bank stocks can shake off yesterday’s blues and stage a rally. 

For further comment from CMC Markets please call 02 8221 2137.