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 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.

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