Daily Commentary BY THE CURVE TEAM –

Markets Rattled by Rising Bond Yields Ahead of Key Data

5th of October, 2018

Rising bond yields continue to reverberate around markets ahead of the September nonfarm payrolls report tonight. Local data yesterday was weak with the next big number, the August retail sales report, today.

The USD was once again in the ascendancy overnight while equity markets were on the back foot as the sharp lift in bond yields reverberated around global markets. With more debt that ever before globally, rising interest rates are going to have a major impact on households, businesses and governments and in turn the outlook for growth.

It leaves markets precariously placed ahead of the September nonfarm payrolls report to be released in the US tonight. With expectations high, any miss from the data could see moves from the past few days reverse. However if the data prints strong, especially the wages data, we could see some big moves.

Remember it was nonfarm payrolls that triggered the surge in volatility in February so we could be in for a wild night depending on how the data prints.

Regardless of the outcome though, the Fed sees the strength in the US economy continuing which will require higher rates. This is something that households, businesses and governments need to come to terms with and prepare accordingly.

Following on from the collapse in business approvals earlier in the week, the latest construction PMI in Australia fell below 50, indicating a fall in activity, for the first time since January 2017. More tellingly though, the new orders index completely collapsed, falling 9.7 points to 47.1 while the employment index fell further below 50 and wages growth also slowed.

It wasn’t all bad new though with the trade balance posting another solid surplus as rising commodity prices continue to support export revenue.

The focus today ahead of tonights nonfarm payrolls release will be the August retail sales report for Australia with the market expecting a lift in sales of 0.2% after sales in July were unchanged.

David Flanagan

Director - Interest Rate Markets