– The global bond rout is here. It’s not yet the taper tantrum the Fed fears and may ignite with its first tightening later this year but there have been some significant moves in the past few days and global bond rates have risen sharply. Interest rate traders call that a selloff because rates rising drive bond prices down. But whatever you call it, it’s a rout. In the US rates are up 10 points to 2.36%. That’s the highest close for US 10’s since November last year. In Germany rates sold off sharply as well with the 10 year bunds up another 17 points to 0.89% while rates in the UK rose 8 points to 2.08%.
– Important to the European sell off was the ECB policy decision and Mario Draghi’s press conference. Imre Speizer said “in the subsequent press conference ECB chief Draghi remained adamant that the quantitative easing program would remain in place at least until September next year even in the light of recent encouraging activity and CPI data.” But rates rose and Draghi said markets just have to get used to volatility. So he’s not bothered by the spike in rates.
– The impact hasn’t been lost on Australian markets either with our 10 year futures off 16 points in overnight trade. Like the US that means they are likely to be trading at their highest levels since November last year when they open this morning. I’ve taken a look at Aussie bonds here.
– The bond market sell-off is huge news in the context of global markets. Stock market ructions often start in bonds or at least in markets associated with interest rates. Think the GFC. So we need to watch that carefully. But it seems like it is also becoming clear that some part of the aggressive bid tone in German Bunds so far this year has been associated with concerns about Greece. So stocks might be able to navigate this rocky road a little better than moves of this magnitude in bonds would usu usually imply.
– Looking at stocks it’s been a reasonable night in the US and Europe with stocks up in all the major markets we watch. In the US the release of ADP payrolls at 201,000 was slightly better than expected but ISM manufacturing dipped to 55.7 in May. Still solid though. Yesterday Australia’s version of this release printed 49.6. Given the similarity in the structure of the economies, if services in Australia were as strong as they are in the US we’d be having a very different conversation about growth and interest rates.
Here’s the overnight scoreboard (7.43am AEST):
- Dow Jones up 0.36% to 18,076
- Nasdaq up 0.45% to 5,099
- S&P 500 up 0.21% to 2,114
- London (FTSE 100) up 0.32% to 6,950
- Frankfurt (DAX) up 0.8% to 11,419
- Paris (CAC) up 0.59% to 5,034
- Tokyo (Nikkei) down 70 points to 20473
- Shanghai (composite) down 0.01% to 4,909
- Hong Kong (Hang Seng) up 0.69% to 27,657
- ASX Futures Overnight (SPI June) +6 to 5,594
- US 10 Year Bonds +11 to 2.37%
- Australian 10 year bonds +15 to 3.065%
- AUDUSD: 0.7774
- EURUSD: 1.1267
- USDJPY: 124.26
- GBPUSD: 1.5328
- USDCAD: 1.2450
- Crude: $59.64
- Gold: $1,184
- Dalian Iron Ore (September): 436
– On the local market yesterday it was another day of selling and the ASX200 is back down testing important technical support. Traders will be watching the 5,575 level and then the 5,545/55 region. If the latter gives way the outlook would turn very bearish. It has to break first though. Time will tell.
– In Asia yesterday the Shanghai stock exchange was down in morning trade but after lunch traders essentially wiped away the losses with only a minor dip. In Tokyo stocks were lower even though the services PMI was solid. Recent highs have sparked concern as to whether the Japanese and global economies can justify or sustain such levels. Realistically it was only a small fall but Soc Gen reckons the rally in Japanese stocks can continue.
– On forex markets Greece is inching its way to some sort of deal and surging interest rates helped the Euro higher once again overnight. Other rates were mixed. Sterling hasn’t moved but the CAD is down a little and the Aussie has been unable to hold on to the 78 cent region. It spiked too soon after the GDP data yesterday. There’s a good technical reason for that.
– On commodity markets gold is down $8 to $1,184, Nymex crude fell right out of bed down 2.69% to $59.61, copper is becalmed at $2.75 a pound while Dalian iron ore futures dipped back from above 440 yesterday afternoon to 436.
– On the data front today the wave of information about the Australian economy continues with the release of retail sales and trade data for April. The Bank of England follows the ECB with its monetary policy decision this evening and then we get Challenger payrolls and jobless claims in the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Greencross Ltd (GXL. ASX)
If you own a pet, you’ll be well aware that they can be a significant item on the family budget. The “humanisation” of pets is one of the key drivers of the Greencross business. The tendency for owners to treat pets as part of their family leads to more purchases of high quality food, treats and accessories.
Greencross is in the pet business. It operates retail stores, vet clinics and grooming salons with Petbarn being its leading retail brand.
Despite yesterday’s weak overall market, Greencross showed signs of stabilising around the 78.6% Fibonacci retracement level yesterday. If it continues to consolidate around this level, a rally could be in prospect.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC