Stock and bond selloff continues, Euro and Aussie up on US dollar weakness

Quick Recap

Janet Yellen scared the heck out of bond and stock traders overnight delivering a warning that both markets are overvalued.

I would highlight that equity-market valuations at this point generally are quite high. Now, they’re not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there.

What’s clear in that statement is the implicit warning on bonds, which has been a key focus we have been discussing in this note and my overnight note for a while. There were reports Yellen said we could see a sharp jump in long-term rates as the Fed begins to re-tighten monetary policy. Bond markets are a clear and present danger for global financial markets.

Which is why it’s no surprise that stocks have finally woken up to the slow motion trainwreck and started selling in the past few days/week.

Last night in the US stocks were down, Europe struggled back to positive territory and the US dollar lost out it seems because European rates moved further and faster – in a relative sense – as well as the weak ADP employment survey which only printed a gain of 169,000 suggesting that non-farms might undershoot on Friday.

Crude hit the 1.382% extension of the recent move before pulling back $2 to close at $60.60ish. That suggests this move could be over for the moment. Gold continues to languish, or rather it’s becalmed while trhe Euro ripped close to 2 big figures above the low of yesterday at one stager last night before dipping back to the mid-1.13 region this morning. Likewise the Aussie was above 80 cents again last night before pulling back as the Euro dipped.

On the day

Today the big data point for locals is the employment report for April. The market is expecting a small increase of 5,000 but there are plenty of calls for a drop in employment. The unemployment rate is expected to be 6.2%. The UK election (7:00am GMT) is the big event offshore but we’ll also get jobless claims in the US.

Here’s the overnight scoreboard (8.32am AEST):

• Dow Jones down 0.48% to 17,841
• Nasdaq down 0.4% to 4,919
• S&P 500 down 0.45% to 2,080
• London (FTSE 100) up 0.09% to 6,933
• Frankfurt (DAX) up 0.2% to 11,350
• Paris (CAC) up 0.15% to 4,981
• Tokyo (Nikkei) closed
• Shanghai (composite) down 1.57% to 4,231
• Hong Kong (Hang Seng) down 0.41% to 27,640
• ASX Futures (SPI June) -26 to 5,630
• AUDUSD: 0.7973
• EURUSD: 1.1346
• USDJPY: 119.45
• GBPUSD: 1.5244
• USDCAD: 1.2036
• Crude: $60.60
• Gold: $1,191

CHART OF THE DAY:

ASX200: I’m using an investing.com chart again for ease because its the chart I used at Business Insider this morning.

The key is that if the AXJO breaks below 5650/60 it should continue toward 5,500 and then perhaps 5,300.

Yesterday I highlighted the Shanghai Composite had broken lower and might weigh on other markets. Yesterday saw it try to break higher but reject the trendline…that focusses it lower once again.

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.