Originally published by Rivkin Securities
It was a fairly uneventful day for stocks with the Dow Jones virtually flat and the S&P 500 up just 0.2%. The action overnight was actually in the bond market where after weeks of flattening, the US yield curve has rapidly steepened over the past couple of days. The 10-year yield has risen sharply, back to 2.95% and is again threatening to break the 3.0% level. With the 2-year yield relatively unchanged, the spread between the 2-year and 10-year bonds is back up to 32 basis points. The catalyst for the sell off in long term bonds may have been the spike in Japanese yields as reports suggest the Japanese central bank may begin tightening monetary policy after years of ultra loose policy.
Gold prices continue to sink back towards new one year lows, currently at US$1,225. When priced in Australian dollar, the falls have been less severe due to a decline in the AUD/USD exchange rate. Overnight, the Australian dollar fell to US$0.738 which is getting close to a new two year low. The weakness in the Australian dollar was as much a strong US dollar story as it is a weak Australian dollar story with the US dollar index climbing 0.25% last night. The Chinese yuan has been declining sharply against the US dollar over the past month, which has prompted President Trump to accuse China of currency manipulation. China has responded by saying it is market forces that are driving the change and that it has no desire to boost exports through competitive devaluation.
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