The rout in global bond markets accelerated overnight, and share markets finally took notice. Ten year bonds bore the brunt of the selling, and at one stage US ten year yields were 0.20% higher for the session. Share markets finally took notice of rising interest rates, and high flying technology shares were hardest hit.
The trigger for the moves was stronger US data. Durable goods orders and jobless claims were both better than forecast, and the inflation component of the national accounts printed at 1.4% for the quarter. The rosy economic picture puts pressure on the accommodative stance of central banks around the world.
The equity market sell down in bad news for the Federal Reserve, and may herald a new dynamic for equity markets. Fed chairman Powell will be disappointed that the effect of his latest jawboning of markets lasted less than 24 hours, and share markets could be heading towards “good news is bad news” as a key driver, due to the impact of stronger economies on monetary policy.
The US dollar reversed early weakness to trade higher. Growth currencies rose, led by the New Zealand dollar and the Norwegian kroner, but cryptocurrencies were uncharacteristically quiet. Commodity markets came under pressure from the stronger dollar, and gold is once again flirting with important support at $1,765. Base metals and oil markets rose on the better growth outlook.
The next 24 hours brings a data dump around the globe, and will test the good news is bad news for shares hypothesis. Local highlights today include New Zealand trade, Japanese inflation and retail sales, Australian credit and Singaporean industrial production. China official PMIs are due over the weekend.