Originally published by Rivkin Securities
US stock markets declined overnight with both the Dow Jones Industrial Average and S&P 500 down 0.67%. This actually marks the worst one-day decline in the S&P 500 since September last year. By historical standards, however, a 0.67% decline is completely normal. The Australian stock market was up yesterday but futures are pointing to a lower open this morning.
Bond prices continue to fall (meaning yields rise) as the downward trend that started in September last year continues. The US 10-year bond yield is now at 2.69% (after getting as high as 2.72% earlier) which means the spread in yield between the Australian and US 10-year bonds is now just 16 basis points. The narrowing spread will cause less capital to flow to Australia looking for the positive yield spread that has persisted since the Global Financial Crisis which should ultimately put downward pressure on our currency. In the shorter term, the currency continues to be strong against the US dollar (mainly due to US dollar weakness) currently trading close to US$0.81. The conflicting signals indicate that other factors, such as the large US budget deficit and national debt, may be the driving force behind these shorter-term currency movements.
Gold prices declined through $1,350 per ounce and are currently trading at $1,340. Despite the decline, gold appears to be consolidating the strong gains made over the prior two months as it has encountered resistance at this US$1,350 level.
Data Releases:
- Eurozone Prelim GDP 9:00pm AEDT