The chairman of the US Federal Reserve re-iterated the central bank’s accommodative stance in testimony to a Senate committee overnight. Mr Powell repeated his assessment that the US economy is still a “long way” from full employment, and the Fed’s inflation target. The reassurance lifted stocks out of the red and weighed on the US dollar, but bond traders were largely unimpressed.
The move to higher yields saw the ten year bonds of Japan, Australia, the UK, Sweden, Switzerland, Canada and the US hit their lowest price in more than a year. German bunds are close to the same mark. While central banks will take extreme care with any changes to policy, bond markets are indicating there will be little choice but to raise interest rates as economies recover from the impact of the pandemic.
However share investors clearly see things differently. Reports of Powell’s testimony saw stock recover from a heavy opening sell down. The move higher was led by Energy stocks, after crude oil prices climbed again. Financials and industrials also performed well, but the interest rate sensitive utilities sector languished.
Futures markets indicate a positive start to Asia Pacific trading. Traders will watch the action in Hong Kong very closely, after yesterday’s news of a 30% lift in stamp duty on stocks saw the Hang Seng crumble. The Kiwi dollar is also on the radar after lifting sharply on news that the government has forced the RBNZ to take house prices into account when setting monetary policy.
Twenty top Australian companies are due to deliver earnings reports today. The dual listed A2 Milk is trading down 16% in New Zealand after a 35% decline in earnings as sales to China stall. Qantas and Flight Centre have both posted much larger than forecast losses. The Buy Now Pay Later sector is in focus. Afterpay announced a consensus defying loss of $77 million and a $1.25 billion capital raising, and Zip Co lost $140 million, significantly more than forecast, potentially offset by a 130% increase in revenues.