12/09/2016 - 06:24

Global Equities & Bonds fall… first time since 2013… is this the start of “Armageddon?”

12/09/2016 - 06:24


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With the Dow closing down a “whopping” 394 points on Friday night, it’s time to go to the beach……….

Global Equities & Bonds fall… first time since 2013… is this the start of “Armageddon?”

Good Morning,


How was your weekend?


Friday night we attended the Hawks game @ the MCG with our 87,000 other “friends”………..


Given the loss on the final siren (yes, Smith could have and should have won the game but kicked a point)… we weren’t very happy with the result…


The walk home also wasn’t fun..… but hey, we have another chance….


Lucky ….


So let’s talk markets…….


Do we really want to talk about markets today???


With the Dow closing down a “whopping” 394 points on Friday night, it’s time to go to the beach……….


But it’s cold & wet in Melbourne, so we’re going to be “scratching our heads” this morning, trying to work out if Friday’s huge selloff is a “one-day blip”, or the start of a savage downtrend…….


The issue is that the Dow has now broken its 43 day trading “band”……….


And this “break of trend” will bring some “anxiety” to markets……..


So expect volatility…..

Compounding global market jitters is the North Korean nuclear test which took place last week, adding to the risk-averse tone throughout Asia.

To add more fuel to rate rise speculation, US Fed governor Lael Brainard will speak on Monday night and – given the recent disappointing manufacturing, payrolls and non-manufacturing data results over the last few weeks – many expect her to stick to her dovish tone.

The market is currently pricing in a 30 per cent chance of a US rate hike in September and a 73 per cent chance in December…..

Bonds & Equities

Calm had dominated financial markets in late summer with equity volatility and bond yields near historic lows and measures of cross-asset correlation at the highest levels since at least the financial crisis.

Concerted declines of this size in stocks and bonds are rare though not unheard of, and are usually associated with central bank hawkishness. Adding up the percentage losses in the SPDR S&P 500 ETF and the iShares 20+ Year Treasury Bond ETF, the last time the moved in a similar manner was Dec. 3, 2015, when Fed Chair Janet Yellen indicated the conditions for higher rates in the U.S. had been met.

The last time the two ETFs each posted declines comparable in size to today’s was June 20, 2013, the start of the so-called taper tantrum, when then-Chair Ben S. Bernanke said the Fed may start reducing bond purchases that had fuelled gains in markets globally.

Focus on Oz……

This morning, National Australia Bank will also release its business survey, which measures activity in the non-mining sectors of the economy.

US crude oil inventories are slated for release on Wednesday.

Australian employment figures are due out on Thursday. The market largely expects 15,000 new jobs to have been created in August, though National Australia Bank suggests as many as 22,000 new jobs have been created. The majority of market watchers expect unemployment to remain unchanged at 5.7 per cent.

Also on Thursday, New Zealand's second-quarter GDP growth is slated for release and National Australia Bank expects quarterly growth to pick up to 1.2 per cent, making annual growth at 3.7 per cent.

"This rate of growth would start to deflect criticism that New Zealand's economic expansion is mainly population (read: immigration) driven," wrote Tapas Strickland, economist at National Australia Bank in a note to clients over the weekend.

European leaders will meet on Friday to discuss the construction of the European Union following the Brexit vote in June. The one-day meeting will discuss areas such as economy and security.

The SPI is down 79 points this morning…


Niv Dagan is an Executive Director of Melbourne based boutique funds management and corporate advisory firm, Peak Asset Management (www.peakassetmanagement.com.au). He is also a regular financial commentator on Sky Business


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