Daily Commentary BY THE CURVE TEAM –

Rebound Continues

13th of February, 2018

The failure of bond yields to break and hold above recent highs overnight saw the USD ease back and gave the equity market pair back more ground it gave up last week. The next hurdle for markets will be the US CPI release due out tomorrow night where the outcome could be critical to where things go next.

The US bond market, which still holds the key to the near term outlook for markets, found support after a weak start to the session. Yields on the 10 year note drifted above 2.90% for the first time in over 4 years before finding support ahead of the equity market open. They eventually closed below the key resistance level of 2.88%.

The fact that the rise in bond yields has stalled over the past few days has seen the bid tone in the USD ease back with most major currencies, including the AUD that gained some ground overnight. The AUD has done remarkably well the past couple of days despite the AUD-US 10 year bond spread threatening to turn negative.

Equity markets recouped some more of their losses from the heavy selling we saw last week, but aren’t out of the woods yet. The next key test will be the CPI release on Wednesday night. Any hint that the pick up in wages that was seen in the most recent US employment data has had an impact on inflation should be enough to kick bond rates higher. That could see pressure on equities build again.

In Australia the key data for the week kicks off today. After the weekly consumer sentiment numbers come out early this morning, the latest business survey results will be the one to watch at 11:30. Then later this afternoon the February Curve Monthly Insights will be released.

David Flanagan

Director - Interest Rate Markets