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.
Frequently Asked Questions about this Article…
Global bond yields are rising due to increasing US interest rates and concerns over economic issues like the Greek financial situation. This shift is part of the adjustment to a post-quantitative easing world.
Rising bond yields are undermining enthusiasm for shares, as seen in Europe where initial gains faded during US trading. This trend may also affect Asia Pacific shares, especially if heavy selling of bank stocks continues.
A stronger USD tends to push commodity prices lower, which can add pressure to market actions. However, this effect might be somewhat balanced by a lower AUD, which could attract international investors.
BHP's South 32 spin-off has shown a modest creation of value, as the combined value of the two companies outperformed the broader market and the materials sector. However, it may face renewed pressure despite positive investor feedback.
The release of the RBA meeting minutes might be discounted by traders, especially after recent statements and speeches indicating that the RBA rarely provides guidance following a rate move.
Trading sentiment today could be influenced by disappointing PPI data from New Zealand, which may set the tone for upcoming CPI and PPI data releases in the UK and Eurozone, leading to cautious trading.
Asia Pacific shares might experience volatility due to the potential continuation of heavy, ex-dividend selling of banks and the influence of global market trends, such as rising bond yields and commodity price fluctuations.
A lower AUD can make Australian investments more attractive to international investors, as it effectively reduces the cost of investing in Australian assets, potentially offsetting some negative market pressures.
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