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The European debt market is the place to be

Four key markets in focus today: long-term BTP (Italian bonds), EUR/AUD, AUD/USD and Australia 200 cash.

Trader
Source:Bloomberg

Long-term BTP (Italian bonds)

The European debt markets seem to be the place to be at the moment, with the market less concerned about the risks around lending to various European governments and focusing on the low growth and inflation. Add in the European central bank that is surpassing yields, while expanding excess liquidity, and we could feasibly see lower yields (higher prices) in the bond space.

EUR/AUD

Long AUD/NZD looks fairly compelling, although with the RBNZ meeting coming up this week we could see some better two-way volatility. EUR/CAD shorts also look good, but EUR/AUD shorts would be my pick given the downside momentum building here.  Traders need to look at trades that benefit from ultra-low volatility and it seems that measures recently announced from the ECB have put the EUR at the top as funding currency of choice.

AUD/USD

Morgan Stanley produced a note yesterday where it sees AUD/USD trading to parity by Q4 2014. Continued strong buying from overseas investors (namely the Japanese) were largely behind the call, however an improvement in global growth and stimulatory measures from the PBOC were also cited. At 11:30 today we get Australian home loan, ANZ job ads and investment lending data.

Australia 200 cash

A positive start is expected for the local market, and while commodity names look set for a flat open, I would be looking for any stocks that have a high yield, while currently trading well off 52-week lows. There are a handful of stocks that have a current yield above 5% and in this low volatility market this is very appealing, however we want to filter out those that have a high yield as a result of price weakness. Stocks like WRT (with a consensus current yield of 6.28%), IAG (6.47%), NAB (5.85%) and JHX (5.4%) could benefit from the continued search for yield.

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