The US Sneezes and Europe Catches a Cold

A poor growth reading for the USA added momentum to selling in global equity markets overnight. European shares and bonds were hit hard, despite US investors largely attributing the weakness to transitory factors.

A poor growth reading for the USA added momentum to selling in global equity markets overnight. European shares and bonds were hit hard, despite US investors largely attributing the weakness to transitory factors. Futures markets are pointing to a continuation of yesterday’s 100 point rout at the open in Australia today.

Yields for German ten year bonds doubled during European trading and the German DAX dropped 3% as the Euro mover higher against the USD. Global bond markets are moving, and yields climbing, as traders factor higher inflation expectations on the surprising strength in oil prices.  This negative for bond markets provided one of the few positives for local investors, with energy shares set to outperform.

Private sector credit data today may also slow selling momentum if it drops in line with recent stronger retail sales data. Support from international investors is less likely, as the AUD maintains higher levels against the USD and Japanese yen.

For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.

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