SCOREBOARD: Fed loudspeakers

A number of Fed speeches will see QE3 continue to dominate, and the mood in local markets remain needlessly grim.

Friday’s session saw small gains on Wall Street, in the order of 0.3 per cent for both the S&P500 and Dow, although the Nasdaq fell 0.2 per cent. Not bad, especially for a session that was devoid of any news or data. It was worse in Europe though, but just seems to reflect unfortunate timing more than anything. So for instance at the high, the Dax was up 0.5 per cent. US markets opened, equities on both sides of the pond sold off and European markets closed sharply weaker - Dax down 1.8 per cent, CaC off 1.1 per cent and FTSE100 0.7 per cent weaker - missing out on the subsequent rebound in US stocks (S&P was down 0.78 per cent at the low).

So far then, QE tapering fears have seen US stocks off about a 2 per cent for the week, which brings the sell-off from the peak to around 4 per cent. Again, this isn’t anything major considering we were talking record levels. Unfortunately, given so many here are talking recession and telling global investors as much, Australian stocks are down nearly 10 per cent and the even more unfortunate thing is we’re not talking from record levels. The mood here is needlessly grim.

Anyway, as much as some of the stock price moves were overdone in response to tapering fears, perhaps the bigger news is the rise in US bond yields, well global yields. The US 10-year Treasury yield rose a further 14 bps on Friday night to 2.54 per cent. This is the highest yield in about two years and brings the rise over the last couple of months to 90 bps - 40 bps of those in the last week - which is a huge move. The biggest since mid-2009. Sure rates are still around record lows but the momentum is disturbing given no decision has even been taken on QE.

No doubt price moves this week will continue to be dominated by QE talk, especially as there are quite a few Fed speakers this week especially on Friday (people like William Dudley, John Williams, Dennis Lockhart). However the IMF is still trying its best to resurrect panic over Greece. Maybe that will come back with gusto, who knows. On Friday the IMF said that if Greece goes through with its reform package a deal could be reached on funding by the end of July. However political trouble appears to be brewing with the Greek coalition fracturing somewhat over the government decision to close down the main broadcaster. Reformers still have a majority after the split, but obviously less so.

Otherwise there really isn’t much in the way of earth shattering news for Australia. About the most important release for us this week, if not the only release, is private sector credit on Friday at 1130 AEST. The global flow of course is much more interesting and some of the bigger stuff includes US durable goods orders, new home sales and the final estimate of March-quarter US GDP (expected unchanged at 2.4 per cent). As mentioned there is a whole bunch of Fed speak to watch as well given all the alarm over a Fed tapering. I would expect the general tone to play things down a bit as I don’t think the Fed or the US government really want bond yields to surge.

Have a great week…

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