Originally published by Rivkin Securities
Continuing the post-election market reaction, bond yields climbed further overnight with the US 10 Year T-Note closing at a yield of 2.24%, the highest in almost a year. TheAustralia 10-Year yield also rallied, reaching as high as 2.70%. The sharp increases in yield over the past few days will be hurting bond investors as the jump in yield corresponds to a decline in price. Falls in bond prices are occurring worldwide with similarly large moves occurring in the bonds of many European countries.
The Dow Jones Industrial Average closed just slightly up on the day without any big moves occurring in either direction. The low level of volatility over this session is in sharp contrast to some of the large swings seen last week although the index is currently holding at record highs. It was a similar story in the S&P500 which closed flat on the session but is close to record highs. Unfortunately, the local market isn’t as lofty. The S&P/ASX 200 closed down 0.47% yesterday and futures are indicating a small drop on open today.
The Gold price continues to remain weak although it didn’t lose any further ground overnight, closing at US$1,221 per oz, close to its six-month lows. The moves in both bonds and gold suggests a significant ‘risk on’ move as markets are clearly optimistic about Trumps victory. Market watchers will be playing close attention to bond yields as the moves experienced over the last few days have been very extreme and further increases in yield could start to feed through to higher interest rates in the economy.
Crude Oil oil was slightly up on the session, increasing 0.78%, but still near multi week lows as scepticism of an OPEC deal to cut production remains intact. OPEC members are due to meet later this month in Vienna to hammer out the details of a deal that was reached ‘in principle’ in September. The problem for OPEC is that many countries want exemptions to the cuts, including Iraq and Iran, so the heavy lifting of the cuts would have to be done by Saudi Arabia. Both OPEC and non-OPEC oil producers have been ramping up production this year with Russia reaching a post-Soviet high in oil production. The market will be closely watching headlines relating to the deal however it feels like the downside scenario of no deal has been substantially priced in.
Data releases:
· Monetary Policy Meeting Minutes 11:30am AEDT
· German Prelim GDP 6:00pm AEDT
· Great Britain CPI 8:30pm AEDT