News & Analysis

Weekly Summary – Bond Market

March 29, 2019

By Deepta Bolaky

It was a packed week with a slew of economic releases, central bank speeches and Brexit- related headlines. However, the bonds markets were the centre of attention as investors were trying to evaluate the current situation of the yield curve and its impact on the financial markets.

Inverted Yield Curve

The rally in bonds gained momentum throughout the week and spook markets but eases towards the end of the week. Amid global growth concerns, investors are seeking safety in bonds pushing the benchmark US 10-year yields lower. The yield curve inverted as long-term rates such as the US Treasury 10-yr note yields fell below the three-month Treasury bill yield. The curve is seen as an important indicator of the recession and acts as a barometer of economic sentiment.

When such indicator is flashing signs of warnings, you will hear talks of a recession. However, a recession is not generally triggered over a few days of inversion, but a prolonged inversion can be a cause of concern. It is therefore worth monitoring fundamentals and interest rate forecasts over time. Another important point will be the time lag as history shows that if the inverted yield curve is followed by a recession- there is a gap of nine-months and above.

A significant takeaway from this week is that now that the Fed has eliminated rate hikes for 2019, the current situation is ramping up expectations of the Fed cutting rates and it is worth monitoring Fed speeches for clues.

Reserve Bank of New Zealand (RBNZ)

Until recently, the RBNZ has maintained a neutral tone regarding interest rates. This week, the central bank left interest rate steady at 1.75% as widely expected, but sent a dovish tone to the markets which were as surprising as the Fed’s comments last week.

“The Official Cash Rate (OCR) remains at 1.75 per cent. Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down.”

Equity Markets

The equity market was on a swing struggling to find a firm reaction as investors were digesting the current developments in the markets. Recession risks and global growth concerns were dampening sentiment, but they are also weighing whether the sluggish is within the normal range.

The final reading of the annualised GDP figures released on Thursday shows that the US economy lowered from 2.6% to 2.2%, but positive trade news supported the price action in the stock markets.

  • As of writing, to the exception of the ASX200, all major equity indices were in the red for the past 5 days dragged by renewed growth concerns.

         Source: Bloomberg Terminal

  • Japan stock volatility jumps to the highest since the meltdown on Christmas Eve.

  • In the local share market, trading was volatile, and price action swing from gains and losses at the start of the week. However, the index was supported by materials, consumer services, real estate and industrials sectors and is currently trading in positive territory for the week.

Source: Bloomberg Terminal

FX Markets

In the currency markets, the US economy and Brexit headlines dominated the price action of FX pairs amid a packed economic calendar. Central bank speeches and economic data failed to reassure traders of global growth concerns. Major currencies were lower against the US dollar despite disappointing GDP figures. Risk aversion helped the greenback to find safe-havens bids.

Source: Bloomberg Terminal

  • The New Zealand dollar emerged as the worst performer dragged by a dovish central bank.
  • In the UK, the Wednesday vote reiterated the Brexit deadlock. Votes show no majority for the alternative options. The Pound was also mostly under pressure.

Commodities Markets

In the commodities market, oil volatility also increased this week. The tightening of oil supply was supporting prices, but renewed global growth concerns are overshadowing the demand side adding pressure on WTI and Brent Crude.

UKOUSD and USOOSD (Hourly Chart)

Source: GO MT4

Gold reached a high of $1,324.49 during the week before retreating to $1,292 towards the end of the week following the recovery of the US dollar.

XAUUSD (Hourly Chart)

Source: GO MT4

Monday, 01 April 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.02 0.005 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0