Bonds sell off, Shanghai breaks and Aussie dollar lifts

Quick Recap

Bonds are at it again with concerns about Greece continuing to pressure European markets. US bonds were up a little as well with the 30 year hitting a high for the year while the US 10’s finished at their highest level for a couple of months. Regular readers know that I have been watching and banging on about bonds for some time now but they continue to need consideration and watching for traders because of the potential impact on risk appetite globally.

As I wrote at Business Insider this mornging even though there are Greek troubles the fact that the sell-off has no observable catalyst concerns me “because generally, almost always, its interest rate/bond/credit markets which blow up other markets up so I am watching closely this continued sell off in global bonds. The reason is the capital losses on these bonds are huge. At some point that will bite, if the sell-off continues.”

Elsewhere stocks were down across the board with the poor lead from Shanghai’s big sell off yesterday heading west and looking like it is going to do a lap of the globe in Asia again today. There is a real chance that with the US and European markets down and with Shanghai breaking lower (see chart of the day) the ASX looks like it is going to test the bottom of the range again today but it might be rescued by the strong rally in Dalian iron ore which is back above 440 this morning after overnight trade. 5,743 is the level to watch today.

On forex markets the big blow out in the trade deficit, which implies negative growth in Q1 2015 when the first revision is released, hurt the dollar which allowed the Euro to climb off the mat after testing all the way back into the support zone we highlighted. It rallied above 1.12 at one point but is lower again now. That helped the Aussie dollar head higher as well but it is mid range for the last week or so’s trade. USDJPY is back below 120 and the Pound is going to have a very interesting end to the week with the general election tomorrow night our time.

On commodity markets crude rallied to the highest level in ages which is another reason why bonds sold off.

On the day

On the data front in Australia we get the release of March retail sales and apparently the HIA new home sales (apologies I had them in yesterday). In New Zealand we get important employment data while around the world we get HSBC and Markit services PMIs. For most of the developed world services dominate economic output. Even in China its 48%, so these data points are very important for the outlook. Tonight in the US we get the ADP labour report in the lead up to non-farms on Friday.

Here’s the overnight scoreboard (8.30am AEST):

• Dow Jones down 0.79% to 17,928
• Nasdaq down 1.55% to 4,939
• S&P 500 down 1.18% to 2,089
• London (FTSE 100) down 0.84% to 6,927
• Frankfurt (DAX) down 2.51% to 11,327
• Paris (CAC) down 2.12% to 4,974
• Tokyo (Nikkei) closed
• Shanghai (composite) down 4.06% to 4,298
• Hong Kong (Hang Seng) down 1.31% to 27,755
• ASX Futures (SPI June) -49 to 5,755
• AUDUSD: 0.7940
• EURUSD: 1.1186
• USDJPY: 119.86
• GBPUSD: 1.5171
• USDCAD: 1.2065
• Crude: $60.67
• Gold: $1,192

CHART OF THE DAY:

Shanghai Composite: We can’t trade this here at Go Markets but its worth looking at because it can set the scene for a break lower in other markets around the region, inclusing the ASX, if Shanghai starts to really fall.

Investing.com – ssec 06052015

Yesterday we said the AUDUSD looked okay while above 0.7775/85 and that the Aussie’s topside bias remains. It did and it does.