A meltdown in global bond markets spilled over to equity markets which were already unnerved by the relentless rise in long-term interest rates. The S&P500 is currently down 2.2%, following a 20bp jump in US 10yr bond yields. The defensive US dollar benefitted from the turmoil. US 2yr treasury yields rose from 0.13% to 0.19% (a three-month high), while the 10yr yield surged from 1.40% to 1.61% - a fresh high since February 2020 – before settling around 1.50%. Markets were also spooked by an auction of 7yr bonds, which was the weakest in ten years. Australian 3yr government bond yields (futures) rose from 0.29% to 0.35% (an 11-month high), the 10yr yield from 1.72% to 1.95% - the highest since March 2020.
Commodities, Brent crude oil futures fell 0.6% to $66.60, copper fell 0.8%, iron ore rose 0.8% to $174.50 (near a 10-year high), and gold fell 1.6%.
Overnight Currency Ranges
AUD/USD 0.7874 0.8007 (3 year high)
EUR/USD 1.2140 1.22435 (2 month high)
GBP/USD 1.4001 1.4182
USD/JPY 105.84 106.40 (6 month high)
NZD/USD 0.7370 0.7463 (3 year high)
USD/CAD 1.2468 1.2590
USD/CNH 6.4444 6.4975
AUD/JPY 83.54 84.92
AUD/NZD 1.0680 1.0741
Looking forward, US personal spending for January is due this evening, this release is likely to show very strong gains like the retail sales figures for the month. Numbers will be boosted by $600 stimulus checks and the re-implementation of the federal unemployment insurance top-up at the beginning of the month.
AUD/USD traded in a volatile 0.7874/0.8007 range overnight with key topside resistance cleared. Further selling interest is expected near the overnight highs of 0.8010 but more significantly ahead of 0.8130 while downside support should materialise ahead of 0.7820.
Event Risk Data Today
Australia: Credit to the private sector is at a turning point, led by the housing upswing in response to cheap credit and government incentives to build new homes. The market is looking for private credit to grow by 0.2% in January.
New Zealand: ANZ consumer confidence has been on the rise ahead of the February update. The January trade balance should fall to -630mn on a pullback in export volumes over the month. RBNZ Governor Orr speaks in Christchurch at a lunchtime forum.
US: The stimulus will drive a strong personal income gain in January (f/c: 11.0%). While spending will be more modest, The market expects that strong retail trade will see January personal spending rise 1.0%. The core PCE deflator will signal that inflationary pressures remain muted (f/c: 0.1% m/m, 1.4% y/y). Meanwhile, wholesale inventories should continue to add to economic growth in Jan (market f/c: 0.4%). Finally, the February Chicago PMI will be released; conditions have been firming across all components bar the employment measure (market f/c: 61) .