To the scoreboard:
Dow: 21,349.63 +62.60 (+0.29%)
S&P 500: 2,423.41 +3.71 (+0.15%)
AUD/USD: 0.7686 -0.0004 (-0.03%)
ASX200 SPI futures (Sept contracts): 5,670 (+21)
Iron ore benchmark 62% fines: $US64.95 (+0.37%)
1. Markets open FY18 with bond yields rising and stocks in a state of flux. The bond sell-off continued in overnight trade on Friday, with the yields on Australian 10-year government bonds (which move inversely to their price) finishing the week more than 20 basis points higher. US 10-year notes were up 16 basis points for the week and moved close to a key up-trade level above 2.3%. UK and German 10-years also rose more than 20 basis points as markets continued to react to indications of a shift by global central banks towards tightening monetary policy.
2. Bonds weigh on the stock market: US stocks edged ahead on Friday while UK and European indexes were lower. The gains in the S&P500 were achieved despite more selling of tech stocks, which have been the main driver of US stock market returns this year. A steady session on global markets has led ASX futures traders to price in a move higher on the local index after the ASX200 fell by more than 1.6% on Friday. This chart from AxiTrader’s Greg McKenna clearly shows how the ASX200 is currently stuck in a downtrend:
3. It’s all about the data for currency traders: The AUD is back under US77 cents but is performing solidly in early trade this morning. Last week’s theme of weakness in the USD continued in overnight trade on Friday, and pressure remains on the greenback. Some key data points in the US this week will help traders determine whether the recent softness in US data (that’s been weighing on the USD) looks more permanent or whether US economic growth is still on track. The euro, pound and CAD are all maintaining their recent strength against the USD.
4. Data today: It’s a big week of data to kick off the month. This morning there’s manufacturing and services PMI data from CBA, then the weekly CoreLogic house price index (10:00am AEST), with ANZ job advertisements and building approvals data (11:00am AEST). China has its Caixin manufacturing PMIs and Japan also has manufacturing data today. Later tonight, the widely-read ISM manufacturing index is released in the US, and in Europe there’s the unemployment rate for May.
5. Commodities wrap: Iron ore crept higher on Friday, which takes gains since the middle of June to more than 20%. Oil prices also continued their recent rally, with benchmark crude up more than 9% since June 21. A report from Reuters showed that OPEC’s oil production just reached a 2017 high, but that was offset by news that the US Baker-Hughes oil rig count declined for the first time in 24 weeks. High bond yields kept pressure on gold prices, with the precious metal holding just above $US1,240 an ounce.
6. Taper tantrum 2.0 unlikely: Since 2013’s “taper tantrum”, when bond yields surged and stocks dropped after the US Federal Reserve indicated that it would start to withdraw stimulus, any notable change in bond markets (such as last week) raises questions about another negative market reaction. Michael Mackenzie from the Financial Times argues that a repeat of 2013 is unlikely just yet though. He notes that it’s still early days in the return to policy normalisation, with central banks raising the idea more so to maintain a clear line of communication with markets.