Markets put Greece behind them
Although a resolution on extending further credit Greece is yet to be finalised, markets are acting on the assumption that it’s a foregone conclusion.
Acting on the assumption that the risks associated with Grexit are behind them, markets have refocussed on adjusting to a world of gradually rising interest rates, led by the US Federal Reserve. This has seen bond yields and the $US on the way up again in international markets.
US 30 year bond yields rose to test the highs of two weeks ago above 3.2% while the Australian 10 year bond yield is again back over 3%. Share markets however, appear to be unfazed by the latest move towards higher interest rates. In the case of the Australian market this may reflect the fact that “yield” stocks like the major banks have already fallen significantly as investors positioned for a world of higher US interest rates. Stock markets appear to have factored in an allowance for somewhat higher bond yields so provided yields don’t rise too far too fast, share prices may not be unduly concerned by the current bond market adjustment.
Gold is looking like a casualty of adjustments in credit and currency markets. The stronger $US is a negative for gold prices as is the prospect of increased funding costs associated owning gold due to higher interest rates. At the same time a benign inflation outlook together with reduced risks in Europe are providing limited incentives for investors to own the precious metal.
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Frequently Asked Questions about this Article…
Markets are acting on the assumption that the risks associated with a Grexit are behind them, and are now focusing on adjusting to a world of gradually rising interest rates, particularly led by the US Federal Reserve.
Rising interest rates have led to an increase in bond yields, with US 30-year bond yields testing highs above 3.2% and Australian 10-year bond yields back over 3%.
Share markets appear to be unfazed by the move towards higher interest rates. This may be because markets have already factored in an allowance for somewhat higher bond yields, so as long as yields don't rise too far too fast, share prices may remain stable.
Gold is facing challenges due to a stronger US dollar and the prospect of increased funding costs associated with owning gold as interest rates rise. Additionally, a benign inflation outlook and reduced risks in Europe provide limited incentives for investors to hold gold.
The US dollar is on the rise again in international markets, driven by the expectation of gradually rising interest rates led by the US Federal Reserve.
Australian 'yield' stocks, such as major banks, have already fallen significantly as investors positioned themselves for a world of higher US interest rates.
The bond market adjustment is influenced by the anticipation of rising interest rates, which have led to higher bond yields. Markets have adjusted to this expectation, and as long as yields don't rise too quickly, share prices may not be significantly impacted.
Investors should consider that the stronger US dollar and higher interest rates increase the cost of owning gold, while a benign inflation outlook and reduced risks in Europe offer limited incentives to invest in gold at this time.
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