Good morning. Go the Blues.
– Yep, it’s all about bonds this morning as the seemingly unexplainable rally in US bond rates continued with 10-year Treasuries down at their lowest level of 2014 at 2.44%. As our colleagues at Business Insider US reported, there are all sorts of explanations, including a reference to Chinese property, the Titanic and an iceberg.
– The reality is more than likely that this is a short squeeze of ultimate proportions accompanied by an asset allocation shift into bonds. My hypothesis on this would be that investors – big ones anyway – know the underlying structure of the market is deteriorating, as Sam Ro wrote at BI US this morning. Danger Will Robinson!
– At the close, the Dow was down 43 points or 0.25% at 16,633 after a choppy day’s trade. The Nasdaq fell 0.28% to 4,225 and the S&P 500 was down just two points to 1,910 after a high on the day of 1910. Data-wise it was quiet, but both MBA mortgage applications (-1.2%) and the Redbook index (0.7%) were lower than expected.
– Competing themes in Europe drove the markets with some disappointing data out of Germany on the unemployment front with a rise of 24,000 against estimates of a 15,000 fall. EU-wide data on consumer and business confidence was flat to expectations. In the end, the big bourses in London, Frankfurt and Paris were choppy but didn’t move much day-on-day, with the FTSE up 0.09% at 6,851, the DAX falling 0.02% to 9,939 and the CAC up 0.05% to 4,532. Italian stocks, however, rose 0.85% while Spanish stocks rose 0.4%.
– This overnight action, which included resource stocks lower in London, has seen the ASX SPI 200 June contract fall 13 points to 5524 bid. On the bond boards, the 3-year bond future rose 3 points to 97.22 (2.78%). On the 10’s, there was a very solid rally of 6 points to 96.355 (3.645%)
– In Asia, there was a sea of green as markets reacted to the previous night’s new highs in the US. No doubt there will be some sort of reversal today after the small losses in the US overnight. Recapping, however, the Nikkei was up 0.24% at 14,671, the Hang Seng was 0.59% higher at 23,080 while stocks in Shanghai rose 0.76% to 2050. Today in the region, the only material data due out is retail sales in Japan.
– On Currency markets, the US dollar did really well overnight against the euro, which has finally slipped under 1.36 and sits at 1.3592 this morning. Likewise, sterling came under heavy pressure and finally crashed through the 7-month uptrend. GBPUSD sits at 1.6710. USD is down a touch at 101.82 and the Aussie dollar is doing okay at 0.9232.
– On Commodity markets, Gold is under intense pressure and we will have a separate piece later here at BI to discuss the outlook. Overnight, it fell to $1,258. Silver is down at $19.08 but Copper rallied another point to $3.20 lb. On the Ags, Corn and Soybeans rose half a per cent, reversing yesterday’s plunge, but Wheat was down another 0.35%. On Oil markets, traders seem to have taken a queue from the bond rally and sold off Jun Nymex Crude by 1.34% to a still high $103.08.
On the data front, Japanese retail is out and then locally the HIA new home sales and the very important private new capital expenditure are to be released. Tonight, Germany is out but the big number is the second read of US GDP with the market expecting the initial estimate of just 0.1% growth in Q1 to be downgraded to -0.2%.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I featured Resmed as my stock to watch on the 19th of May. The share price had started to diverge with momentum indicators like the RSI. This indicates collective market indecision which often precedes a change in trend.
Since then price has wafted around but has now come back to test support at the bottom of the trading range. In the meantime the RSI is still heading south. If price follows with a break below support we may yet be in for a deeper correction of the recent steep rally.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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