Bonds warn
The rout in global bond market continues. US, French, German and UK ten year bonds yields are at six month highs as markets move towards a post QE world. The draining of global liquidity will continue to affect all asset prices, with high yielding Australian shares particularly vulnerable. Despite gains on US and European forces, lower commodity prices and further selling down of yield plays could see the Australia 200 index finish in the red for the fourth session in a row.
The Shanghai composite may be a key driver of regional performance. Now within 2% of its post GFC high, many investors are concerned that the 150% gain over the past twelve month is unsustainable. Bulls point to the opening of the investment pipeline between Hong Kong and Shanghai as structural change that justifies a permanent re-pricing, while bears point to the steepness of the rise as a major worry. Any meltdown in Shanghai could sour regional sentiment.
Australian retail sales will speak to a key issue for the Australian economy. Despite a relentless focus on potential negatives from rising house prices, today’s numbers could exceed the consensus forecast of a lift of 0.3% in May if the wealth effect kicks in, potential firming up what may start as a soggy trading day.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
Global bond markets are experiencing a rout due to the transition towards a post-quantitative easing (QE) world. This shift is causing bond yields in the US, France, Germany, and the UK to reach six-month highs, impacting asset prices globally.
The draining of global liquidity is likely to affect all asset prices, with high-yielding Australian shares being particularly vulnerable. This could lead to further selling down of yield plays and potentially impact the Australia 200 index negatively.
The Shanghai Composite is a key driver of regional market performance. With its significant gains over the past year, any major changes in its performance could influence regional sentiment, either positively or negatively.
Investors are concerned about the Shanghai Composite's recent performance because it has gained 150% over the past twelve months. While some see this as a justified re-pricing due to structural changes, others worry about the steepness of the rise and potential for a market correction.
A meltdown in Shanghai could sour regional sentiment, potentially leading to negative impacts on other markets in the region. This is due to the interconnected nature of global financial markets and the influence of major indices like the Shanghai Composite.
Australian retail sales data could impact the economy by providing insights into consumer spending and economic health. If sales exceed the consensus forecast, it could indicate a positive wealth effect and potentially strengthen the market, even on a soggy trading day.
The investment pipeline between Hong Kong and Shanghai is significant because it represents a structural change that could justify a permanent re-pricing of the Shanghai Composite. This opening of investment channels is seen by some as a positive development for the market.
For further commentary on these market trends, you can contact Michael McCarthy at CMC Markets by calling 02 8221 2135. He can provide additional insights and analysis on the current market conditions.
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