Another strong employment report may heap further pressure on high-yielding Australian stocks

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It’s early days, but it looks like it’s going to be another bad session on Australia’s stock market today.

The ASX 200 is already off close to 1%, extending the 2%-plus decline recorded on Wednesday.

With bond yields rising globally the whole mantra of ‘yield trumping all’, that earnings growth can and will continue to expand forever, is now being questioned.

While the global bond rout started offshore, it has been interesting to see the surge in Australian yields over the past two days following the RBA’s decision to remove its explicit easing bias at its May monetary policy meeting.

Yields have been rising helping drive the Australian Dollar higher too. High-yielding stocks, as a consequence, are being punished.

Midway through Thursday’s session, markets will receive Australian employment data for May. Expectations are considerably lower heading into the release given the strong jobs growth recorded in February and March. 5,000 jobs are expected to be created with unemployment expected to tick up to 6.2%.

It’s probably something that the markets would welcome at present. Investors are clearly rattled by the spike in bond yields and, should the employment data come in soft, it will probably act to lower yields slightly, at least in the short-term.

However, should the April employment report outperform expectations – something that has occurred in the prior two months – it will be interesting to watch the reaction from Australian markets.

In the normal scheme of things strong data would normally be welcomed. However, another hot number, something that will further diminish expectations for further rate cuts from the RBA, could have an adverse reaction on the markets. Australian yields will likely rise which, in turn, also support the Aussie Dollar.

A dangerous combination given skittish investor sentiment towards high-yielding stocks at present.

As has has been the case for the vast majority of the past six years it looks like the mindset of “good news is bad, bad news is good” will be in full swing today.

When the data is released at 11.30am, Sydney time, expect a sharp reaction from the markets one way or the other.

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