US Stock Market Bounces

After the sharp falls on Thursday, US stock markets had a significant bounce on Friday with the Dow Jones climbing 1.4% and the S&P 500 1.5%. Although the close was positive, the trading session was exceptionally volatile with the Dow recovering 800 points from the lows just after lunch to eventually produce the positive close. US bond yields returned back to their recent highs such that the ten-year bond is now trading at 2.85% while the 30-year bond is yielding 3.16%. The next significant level for the ten year is now 3.0% and market participants will be closely watching this level to see the effect any break of it might have on equity markets. The spread between the US and Australian 10-year bonds is now less than 2 basis points.  

This week the US will release its CPI data which will be a critical piece of information for judging whether inflation is returning to the US. The expectation of higher inflation is part of the driving force for the increase in bond yields which is what is believed to have sparked the sell-off in stocks last week.  

Gold continues to gradually slide from its highs in late January despite the increased market volatility. Both higher volatility and inflation expectations would normally be bullish for gold although at this stage this hasn’t played out. The prospect for higher rates may still be holding back any appreciation in the gold price. Due to the falls in the Australian dollar relative to the US dollar, the AUD price of gold has been relatively strong recently and has been flirting with the AU$1,700 level recently.

ASX 200 futures are down 28 points this morning, despite the positive close in the US.  

Data Releases:

-    No Significant Data

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This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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