The Overnight Report: Bond Yields Rising

This story features AUDINATE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: AD8

SPI futures are indicating a tough day at the office for Australian equities on Tuesday as bond yields are on the rise (bonds selling).

By Chris Weston, Head of Research, Pepperstone

Good morning.

The theme of the day has been a solid sell-off in US (and DM) bonds, which can in part explain further outperformance in the USD, and while one can argue that equity and gold have a touch of buyer’s fatigue, the momentum in US Treasury yields may have finally caught on.

The sell-off in the US 10yr Treasury has been widely discussed on the floors, with yields rising by a solid 11bp to 4.19%. The moves have been driven by several factors – supply, US election hedging and front running the risk of a Red Sweep’, better US data of late, and technical factors (the trend is firmly higher) but the wash-up is that yields have closed above the 200-day MA, and the trend higher is growing legs.

We also see US real rates breaking higher, with 10-year real rates (i.e. US 10yr Treasuries adjusted for inflation expectations) gaining 10bp – and when the real cost of capital is rising at a clip it is typically a USD positive, and it’s no surprise the USD found a steady bid.

Gold and silver remain well traded by clients, with the net position skewed on the short side, with a widely held view that the yellow metal had gone too far too fast.

Certainly, we can see increased volume in the gold futures on the intraday move above US$2750/oz, with the sellers making a statement, regaining control, and working the metal lower through US trade. Perhaps the sell-off in US Treasuries and the rally in the USD finally made an impact, but the US$2750/55 area in gold futures seems to be a near-term barrier for the bulls to eventually retest and break.

US equity found sellers kick in hard after the first hour of cash trade, with the intraday tape in the S&P500 pulling back from 5866 to 5824, before stabilising and pushing to 5853 at the close.

In a tough market, Nvidia has worked like a champion, and has broken to new highs, and it seems the market has regained its love affair with this name and likes the stock higher backed by the read-through from TSMC’s recent number and traders positioning ahead of the soon-to-be-announced capex intensions from the hyperscaler businesses (Meta, Amazon, Microsoft, Alphabet) in their upcoming earnings releases.

Take Nvidia out of the equation though and there isn’t too much positivity on the floors, with all S&P500 sectors ex-tech in the red, and 84% of S&P500 companies lower on the day, with REITS, health care and financials leading the market lower.

On the calendar today:

-New Zealand Sept Trade Bal

-US Oct Non-farm manufacturing

-Audinate Group ((AD8)) AGM

-CSL ((CSL)) Virtual R&D Investor Day

-Meteoric Resources ((MEI)) AGM

-Magellan Financial ((MFG)) AGM

-Mirvac Group ((MGR)) Qtrly update

-Suncorp Group ((SUN)) AGM

-Syrah Resources ((SYR)) Qtrly report

-Transurban ((TCL)) AGM & Qtrly update

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Qantas Airways ((QAN)) hit with over $100m payout after unlawful sacking of 1,700 workers

-Auckland Council considering selling its NZ$1.1bn stake in Auckland Airport ((AIA))

By Nigel Green, CEO of deVere Group

The S&P 500 hit a record high on Thursday and the path to the never-reached-before 6,000 is now not just possible, but likely.

The momentum in the market is palpable with savvy investors positioning themselves to ride the wave.

We are in the middle of a blockbuster earnings season, and the results are nothing short of spectacular.

The heavyweights of corporate America are stepping up, delivering the kind of earnings reports of which investors only dream. Financials have led the charge, with banks kicking off the season on a high note, pushing the Dow to its own record highs alongside the S&P.

As more top-tier companies report, it appears that the market is gaining further steam. Earnings are the lifeblood of stock market growth, and with companies consistently outperforming expectations, it’s no wonder that investors are bullish.

These results aren’t isolated they reflect a strong, resilient economy that’s defying the pessimists. If you’re not in the game now, you’re missing out on one of the most powerful earnings rallies we’ve seen in years.

As if the earnings strength wasn’t enough, there’s another force pushing the S&P 500 higher central banks.

With inflation pressures cooling off, global monetary policy is moving into a more supportive phase. Major central banks are expected to continue to ease rates, with whispers of cuts growing louder by the day.

Lower rates are a dream for equity investors. With cheap money flowing, companies can borrow, invest, and grow faster, and stocks naturally benefit.

For investors, this is the kind of environment you wait for a once-in-a-cycle opportunity to capitalise on a wave of liquidity.

US equities become the obvious choice. The Fed may be cautious, but markets are betting on more accommodation, and those bets are fuelling even greater upward momentum.

The other major global force propelling the market? China.

The world’s second-largest economy has unleashed a powerful stimulus plan that’s sending ripples across the globe. China’s efforts to boost domestic demand, especially in critical sectors like real estate, are reinvigorating the global growth engine.

This is also huge for companies. From consumer goods to tech and industrials, China’s recovery means stronger demand for American exports and global supply chains roaring back to life.

With China pumping liquidity into its own economy, it’s creating a tidal wave that can be expected to lift all (or mostly all) boats and the S&P 500 is positioned to benefit in a big way.

In the stock market, nothing drives prices higher like the Fear Of Missing Out – And right now, FOMO is setting in across the globe.

The psychological factor is massive. As each new high is reached, sidelined investors jump in, pushing the index higher. The risk appetite is back and for those who are already in the market.

As ever, the real winners in this market are the ones getting ahead of the curve. Smart investors are already positioning themselves to capitalise on the sectors leading the charge tech, financials, and consumer stocks.

Tech is particularly ripe for gains, with AI and digital innovation continuing to disrupt industries and fuel earnings growth.

Meanwhile, financials stand to benefit from stronger-than-expected earnings and a more favourable interest rate environment, and consumer discretionary stocks are riding high on resilient spending.

The question isn’t if the S&P 500 will hit 6,000 it’s when.

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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