Twenty four hours

Greek inspired wobbles in Europe and the US and falling bond markets provide a sour backdrop to a very busy trading session for Australian investors. A federal budget, key industrial and retail data from China today and GDP growth numbers for most of Europe tonight mean sentiment could swing several times in this twenty four hour period.

Like a car smash in slow motion, global bond markets are making the adjustment to a post QE world. Bond yields are at three month highs, and seem set to rise further despite remarks from Fed officials that the pace of tightening may be slow. The exception is Greece, where ten year bonds yields sit in the middle of the three month range at 10.6%. This risk premium to other bonds reflects market concerns amid reports the IMF is now lining up with Greece to demand investors take a haircut on existing debt.

Most budget measures were leaked before last night’s official announcement, meaning there are few surprises for investors. The positive of a balance between near term stimulus and long term deficit repair may be outweighed that some aspects of the initiatives may be obstructed in the Senate.

Rallies in metals and energy could see further support for resource shares ahead of an industrial production read in China. A growth rate of 6.0% pa is forecast for April. A reading away from this level will likely spark a positive market reaction. An undershoot could spark talk of further stimulus, while a higher read point to effective stimulus already enacted.

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