Global equities rally, gold and silver remain elevated, ASX begins to climb from 5,600 base - futures up 36 points

****Please note that I will be on leave from 18 May to 2 June, morning coverage during that time will be sporadic****

The bad mood that was hanging over equity markets last week seems to be lifting. This is a surprise to me, because the story with regard to rising bond yields has not changed. While the yield on 10 year bonds in Australia, US and Germany did back off temporarily after rallying strongly throughout much of April and May, it seems as though the pressure isn't letting up. The story in Germany has been phenomenal - 10 year bond yields there have risen from just 14 basis points one month ago to 70 basis points today. Bond yields rise as investors sell bonds, which generally indicates an appetite for risk, as investors leave the safety of risk free assets and go hunting for higher returns. When bond markets sell off too much, an equilibrium is created as yields rise high enough to attract money back to bond markets - but right now it seems as though the trend for bond prices is down and cash will be forced to find other destinations.

The other side of this equation is that higher bond yields will push up the price of borrowing for corporations, as the risk-free rate upon which financing deals are built on rises. So it's an odd situation and I'm not too sure the big end of equity markets know quite what to make of the rising bond yield trend yet; however, the bottom line is that there is a lot of cash piled up on balance sheets around the world after years of easy monetary policy and deleveraging, and it has to end up somewhere. There has probably never been a better time to raise capital, and I'm surprised we're not seeing more IPOs come to market.

In today's charts I've plotted the ASX 200 regaining some momentum after its recent sell-off, edging closer to what was previously the 5,750 buying support that held it up for most of this year. Let's see if we can push through that and hold. The Australian dollar (second chart) is holding up above US$80c and some stability at this level would prove positive for the Australian share market. If the currency continued to trend higher, Australia's export markets would infuse a little more tension into the broader local equity market.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: US industrial production and manufacturing stats at 11:15pm, University of Michigan US confidence survey at 12am, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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