Assets at either end of the risk spectrum could dominate market action this week. Friday night brought another damaging sell off in bond markets, and Bitcoin soared above US $61,000 in weekend trading. The Australian dollar is sliding against the Japanese yen this morning, in signs the growth-off moves that saw out the trading week will drive Asia Pacific trading today.
US ten year bonds sold off by 9 points on Friday night, and Australian ten years are 10 points higher this morning. The ongoing bond market rout presents a dilemma for share investors. Bonds are selling off due to a positive economic outlook. However the impact on prices, and therefore central bank policy, is potentially damaging to shares prices. Rising borrowing costs and the negative effect of higher interest rates on stock valuations are further reasons for concern.
Investors reacted on Friday night by rotating out of technology and other higher growth sectors and into blue chip stocks with better re-opening prospects. The Dow Jones Industrial Average rose as the technology laden Nasdaq index fell, and Boeing once again starred with an almost 7% gain.
Bitcoin will be a focus for traders as crypto futures markets re-open this morning. In another illustration of the current market inversion, these most volatile of assets are being touted as a “safe haven” investment to rival gold. Regardless, the potential for further record breaking moves this week is real.
China data due today could be highly influential. Both industrial production and retail sales are expected to show very strong bounces, largely due to the year on year compassion with a Lunar New Year holiday and lockdown affected period last year. Anything less than a 20% bounce in both numbers could be viewed as disappointing by market participants.