Is the bond market rout over, US dollar bulls think so

Quick Recap

Stocks up marginally to a new all-time high on the S&P 500 but US consumer confidence dropping precipitously. That was completely unexpected by traders and economists who had been focussed on a mil improvement to 96 not the fall to 88.6 in May.

That gave bonds the impetus to reverse more of their recent sell off. US 10 year bonds rallied hard to end the week at 2.15% up just 3 points over the week. The big news of course was the reversal off the weeks high with the weekly close 21 points lower than the high for the week at 2.36%. German 10 year Bunds closed at 0.63% down 8 points while rates in Spain, Italy and the UK all rallied hard as well. UK 10’s closed the week at 1.89%, down 11 points.

But according to my old colleague from Westpac, Richard Franulovich, that doesn’t mean the bund rout is over. You can see the piece I’ve written at Business Insider on why Franulovich reckons we are only about half way through this selloff – that implies bunds rates up and above 1% as I’ve been suggesting recently.

The move in Forex was most acute after the confidence data was released which saw Euro back in the mid-1.1450 region. The Aussie and Kiwi lagged, as did the Canadian dollar. Sterling still looks okay but USDJPY is trapped in its range. It might be a big week for Forex traders.

Elsewhere Gold is still up in the $1,220 region as uncertainty has exactly washed out of the market and Australia’s ASX200 is right on the level associated with the years range. Trouble could be ahead for the index though if traders believe that the warning on a Sydney and Melbourne property bubble from ASIC Chairman Greg Medcraft is going to hurt bank profitability.

On the day

On the data front today RBA Deputy Governor Lowe is speaking this morning but Japanese machinery and industrial production data is out and Chinese house prices will be of key interest. Tonight in the US we get the NAHB index. AND don’t forget that Greece is a risk this week.

Here’s the overnight scoreboard (8.55am AEST):

• Dow Jones up 0.11% to 18,272
• Nasdaq down 0.05% to 5,048
• S&P 500 up 0.08% to 2,122
• London (FTSE 100) down 0.18% to 6,960
• Frankfurt (DAX) down 0.98% to 11,447
• Paris (CAC) down 0.71% to 4,993
• Tokyo (Nikkei) 19,732
• Shanghai (composite) down 1.57% to 4,309
• Hong Kong (Hang Seng) up 1.96% to 27,822
• ASX Futures Overnight (SPI June) up 2 to 5,749
• AUDUSD: 0.8036
• EURUSD: 1.1443
• USDJPY: 119.40
• GBPUSD: 1.5734
• USDCAD: 1.2017
• Crude: $59.81
• Gold: $1,224
• Dalian Iron Ore (September): 426

CHART OF THE DAY: AUDNZD 

200 day moving average is support at 1.0708 and after the Kiwi was hit by the new property tax this morning my view that this is headed back to 1.06 is in question. But my system continues to suggest 1.0600/20.

Not so smart it seems, after I said Friday “the target has been 1.15 for ages and that remains. But that today (Friday) I’m less excited about that after last nights 1.1440 high. Taking profit on 50% of longs now.”