Originally published by Rivkin Securities
Bond yields dropped globally on Friday as investors prepare for a very busy week of data as well as Donald Trump’s State of the Union with investors still waiting for a clear plan of action and timeline for stimulatory policies. Data this week also includes the Australian Trade Balance, US GDP, US Advance Goods Trade Balance, US Consumer Confidence, Australian GDP, China PMI, US PCE, Euro-zone CPI, Japanese CPI, European PMI reports and a number of key Fed speakers including a speech by Janet Yellen on the economic outlook.
Australian two and ten-year yields declined -3.2 and -5.4 basis points respectively on Friday as the Australian dollar dropped -0.57% in line with Iron Ore with Dalian futures trading -3.35% lower. In European German two-year yields reached a new record lower falling -4.6 basis points to -0.949% and ten-year yields declined -5 basis points. US yields also fell following disappointing new home sales and consumer confidence data. New home sales (MoM Jan) increased +3.7%, lower than the +6.4% forecast while the University of Michigan consumer confidence survey was less than anticipated at 96.0 vs 96.3. Both the two and ten-year yields declined -4.7 and -7.1 respectively.
The decline in bond yields boosted the more defensive sectors for US equity markets, with utilities (+1.40%), telecommunications (+0.71%) and industrials (+0.57%) leading gains while cyclical sectors such as energy (-0.86%) and financials (-0.53%) weighed on the index. Still both the S&P 500 and Nasdaq 100 pushed to new all-time highs up +0.15% and +0.21% respectively. The U.S. dollar index gained +0.07% with the dollar mixed, rising +0.18% against the euro but falling -0.35% against the yen and -0.58% against spot gold, signalling demand for safe haven assets in line with the decline in bond yields.
The S&P/ASX 200 index finished -0.79% lower on Friday and this morning we can expect to start the week on a softer note with ASX SPI200 futures down 16 points. The first chart below shows the index from a technical view, bearish momentum divergence has formed between the January and February highs signalling that the strength of recent gains are fading. While the price has pulled back over the past week, the formation of this divergence suggests the decent probability of a slightly deeper retracement. Below current levels initial support is found around the 50-day moving average at 5,691.15 while key support is located at 5,600, marked by prior highs and lows. The formation of a higher low above the 5,600 level would confirm the intermediate uptrend remains intact.
Data releases:
· Australian Inventories (QoQ Q4) 11:30am AEDT
· Australian Company Operating Profits (QoQ Q4) 11:30am AEDT
· Euro-zone Economic Confidence & Business Climate (MoM Feb) 9:00pm AEDT
· US Durable Goods Orders (MoM Jan) 12:30am AEDT
· US Pending Home Sales (MoM & YoY Jan) 2:00am AEDT
· Fed’s Kaplan Speaks 3:00am AEDT
Chart 1 – ASX200 Index
