Bond markets and bank bargain hunting set a steady tone ahead of a big data session

Share investors got some relief from world bond markets last night with the big increase in yields seen in recent days coming to an end, at least temporarily. Higher bond yields have been placing pressure on equity valuations with investors becoming concerned that we may be witnessing the first stages of a seminal adjustment to higher levels in bond yields. The fact that bond markets steadied last night will provide a firm setting for the share market this morning as it heads into a big data session.

Bargain hunting in bank stocks was clearly in evidence yesterday. Whether or not this continues today will be a key determinant of the ASX 200 index. Macquarie Group’s solid result should help steady nerves about the financial sector today.

Energy stocks are likely to be under pressure this morning, after weaker oil prices last night. It’s ironic that oil prices should begin to fall just after news of the first meaningful decline in US inventories this year. Recent statements by shale oil companies indicating they will increase drilling over coming months is a reminder that prices in the $65-70 range are likely to be attractive to marginal production in a market that is already over supplied.

The RBA’s Statement of Monetary Policy will be closely watched this morning. It has the capacity to provide further insight into the strength or otherwise of the RBA’s easing bias. The Statement carries potential for volatility after the market’s disappointment in the Governor’s statement following Tuesday’s board meeting.

China’s trade data will be a key focus for markets. Recent soft manufacturing indices and last month’s weak export data have set up a situation where another weak number today will compound concerns over softening growth in China.

Markets are anticipating a rebound in US jobs data when the non-farm payrolls data is released tonight. A small decline in initial jobless claims has helped cement this expectation. This week’s sell off in bonds has increased the significance of tonight’s release for markets. Any significant miss to the downside in the jobs data could see buyers returning to the bond market in expectation of ongoing Fed caution on rate increases.

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