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Curves flatten further - Markets Weekly

Markets Key Themes

  • US data good; EU data poor = further weakness in EUR/USD
  • China data solid
  • AUS data stronger
  • Bond yields are still near their 2014 lows, curves flatten further
  • Geopolitical risks continue to build

AUS bonds have fallen away from overstretched targets, but have they topped out?

AUS bonds have fallen away from overstretched targets, but have they topped out? US 10yrs still look trapped in a 2.45-2.65% range so yields have some general upside risks given the data flow this week.

 

AUS 3yrs hit the top of the range in the mid-50s and have quickly fallen towards support at 9727/30 which should hold on the first attempt near those levels. At this stage I'd suggest a consolidation between 9727-9750. Frustrated shorts who have been stopped out and will want to re-sell towards 9745.

3yrs 25jul14

The 10yrs were very overbought and look vulnerable to some more losses if they close below 9653. However given the strength of the uptrend and no apparent top pattern, they may want to bounce off here first...maybe prices need to distribute up at these levels for a while.

10yrs 25jul14

 

In yield terms, just a reminder of the significance of the resistance levels which we failed to clear (10yrs).

au10y 25jul14

The curve has a target at 68/70bp(possibly lower) which I think we will see over time but as always the curve will bounce when US yields rise.

curve25jul14

US yields firmly trapped between 2.45%-2.65% unfortunately.

us10 25jul14

 

 

Fresh CPI instalments and RBA speech this week - Markets Weekly

Markets Key Themes

  • Yellen's testimony comes and goes
  • US data mixed
  • Geopolitical risks continue to simmer away on multiple fronts
  • Market reaction is contained (for now)
  • Bond yields are back at or through their 2014 lows, curves flatter. Prices look stretched ahead of CPI's
  • Summer doldrums – quiet markets in Europe

AUS bonds reach significant levels - Weekly Charts

The bond bull market continues... Prices always seem stretched but it's hard to suggest a bearish view at this stage.

 

3yr futures have reached the 9750 target but there is a good chance they will have a look at the range high at 9756/57. They haven't closed above 9753 on previous attempts of this area so a close above 9653 would be significant.

3yrs 18Jul14

 

In yield terms, the 3yr yield has fallen to the bottom of its range which could support yields from falling further in the near term. A break of 2.44% would be pretty bullish for the 3yrs.

au3y 18jul14

The 10yrs hit the 0.618 retracement near 9670 which is offering some fresh resistance today however the trend is strongly in favour of the bulls.

10yrs 18jul14

In yield terms, there is (potential) trendline support coming in around current prices....coupled with the Fibbo resistance in the futures, it may suggest some good resistance around current levels.

au10y 18jul14

The curve needs a fresh close below 85bp to open up a move towards 80bp and probably lower.

curve 18jul14

 

 

AUS unemployment almost equals US - Markets Weekly

Markets Key Themes

  • FOMC minutes perceived as slightly dovish as bonds rally
  • EU banks fall on Portugal worries but impact seems contained for now
  • Geopolitical risks continue to simmer away in the background
  • AUS unemployment almost equals US now
  • CH data disappoints slightly
  • Stocks fall from the highs

Australian front end breaks through whilst bonds approach target levels - Weekly Charts

The 4th Bank Bill continuation is trading at the highest prices since Sep13 and may be set to test fresh highs above 97.65? Or is this a short term spike like we saw in Dec13?

IR4 11jul14

The 3yrs found fresh buy stops yesterday and are nearing their longer term target at 9750/55 where solid resistance lies. Reassess when we get there. A close below 9732 is needed to negate the current bull trend.

3yrs 11Jul14

The 10yrs are just about at the large reverse H&S target at 9660 so we might see some consolidation around these levels. The trend remains very strong and risks could be for an overshoot toward 9670/75.

10yrs 11jul14

The curve likes to flatten on the rally but support was seen at 85bp yesterday. Look for 85/95 range to play out but maybe risks are towards the downside again. Keep an eye on the US long end to determine whether we can break lower.

curve 11jul14

The concern for bears in the US long end is that they could not even test 2.66 resistance after the very strong Payrolls. Shorts haven't had any joy despite the positive employment data and so they remain the vulnerable side of the market in the short term. The range-trading environment looks like it will continue(approx 2.45% to 2.65%).  

US10y 11jul14

 

 

Fwds suggest AUD lower

Australia's yield spread has been falling. Currently the 12 month FX fwds suggest the AUD should be at 0.9200 and if the trend in the interest rate markets continues Stevens' wish just might come true. 

audfwd 7jul14

 

Diverging CB outlooks - Markets Weekly

Markets Key Themes

  • US data solid
  • RBA meeting unchanged but Stevens speech very dovish
  • CH data good again
  • Stocks are making fresh records
  • IMF to downgrade world growth forecast
  • Different CB action becoming more obvious. NZ are hiking, Europe is cutting, UK and US tightening (eventually), where does Australia fit?
  • Iraq fears on the backburner last week due to better data but risks remain

Plenty more to focus on this week - Markets Weekly

Markets Key Themes

  • Light economic calender last week
  • CH data better again but largely ignored
  • Iraq fears continue but stocks hardly worried so far
  • UK rate rise is coming (one day apparently)
  • Fed speakers sounded a little hawkish late last week
  • flatter bond curves
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