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Some of the recent volatility in bond markets has played a big role in the volatile price action in equities and yesterday it was all about a sell-off in US treasuries. The sell-off in bonds was actually triggered in European trade and not even the fact Greece managed to make a €750 million payment to the IMF was enough to stem the losses.
Data has been limited to start the week but is set to ramp up tomorrow with a raft of releases across Asia, Europe and the US. China releases industrial production, fixed asset investment and retail sales data while new loans and M2 money supply data could also potentially be released tomorrow.
Following some of the action we’ve seen from Chinese officials over the past few months, the market is expecting to see an improvement in all these readings. If that’s not be the case, it will likely fan equities even higher as hopes for further easing increase.
Elsewhere in the region Japan will release its current account, bank lending and economy watchers sentiment reading.
Federal Budget in focus
The ASX 200 has managed a modest rise today despite the Federal Budget commentary flying in from all angles throughout the day. Politicians have a knack of disrupting financial markets and it’ll be interesting to see if investors will be willing to stay the course over the next couple of days. While the headline will be whether the deficit is indeed under $40 billion, the level of fiscal drag from the budget is likely to be the highlight.
The next issue to contend with will be the level of government debt from a budget which is tipped to be family and small business friendly. From there analysts will then look to monetary policy and whether the RBA will have to act to stem pressure from the fiscal side of things. This would then have a direct impact on the AUD and domestic equities. The breakdown will also be interesting as there are no major projects to get excited about and, of course, there will be certain measures that benefit/drag certain equities directly.
The banks have made a bit of a comeback in today’s trade, helped by a jump in March home loans data. However, they continue to lag the miners. China has really given some of these materials plays some renewed vigour and some investors are starting to get excited about them again. However, this move could well be a flash in the pan and might not necessarily go the distance.
Weaker open for Europe
Ahead of European trade we are calling the major bourses mildly weaker with limited releases on the calendar. In the UK we have manufacturing production and industrial production set to be released. This could cause some volatility for the sterling which has been on a tear since the elections.
Sterling crosses are where all the action is at the moment with the post-election momentum continuing to drive the currency. In fact, the sterling is one of the few currencies that the greenback is struggling to gain ground against.
Tomorrow we have the BoE inflation report and Governor Mark Carney speaks. This will be the key risk event for the sterling this week. Europe will be pinned on any commentary from today’s ECOFIN meetings, which could bring fresh commentary on Greece. EUR/GBP remains one of the more interesting pairs to watch given recent election activity in the sterling and the current challenges the euro is facing.