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RBA and Fed are in focus - Markets Weekly

Markets Key Themes

  • AUS business and consumer confidence solid
  • AUS wages remain very weak, real income is negative
  • EU GDP and inflation weak
  • US Retail Sales weaker than hoped
  • Fed-speak dovish - Fisher, Yellen and Kocherlakota
  • Geopolitical events lingering despite some progress in Iraq, Gaza
  • The bond rally marches on and on whilst stocks bounce off support levels

The combination of weak data in Europe and the US, dovish Fed comments (still too much slack in the labour market) and uncertainty in Ukraine/Russia has again helped bonds rally to new highs for the year. The bond market has broken into new territory and the pain trade is higher prices. European data again highlighted the challenges facing the ECB and the European Governments. Credit and Equity markets could be vulnerable if confidence in the EMU drops in coming months.

AUS business and consumer confidence rose further which will please the RBA as this is good news for the non mining recovery story. However the results did show the recovery remains quite a jobless recovery and with the unemployment rate expected to remain above 6% this year. Wages data again displayed a weak labour market with real incomes still falling which will likely weigh on consumption in the months ahead. Last week's data reinforces a rates on hold environment.

What's coming up this week?

AUS Key releases

  • RBA minutes Tuesday - not expecting any changes to message about the outlook for rates
  • RBA's Stevens speaking to House of Representatives - looking for a balanced outlook and will be challenged about the labour market in Q&A.

Offshore Key releases

  • US Housing data Monday and Tuesday - has been moderating
  • US FOMC Minutes Wednesday - look for clues for changes to timing of first hike (unlikely)
  • BOE Minutes Wednesday - when will they hike?
  • CH HSBC Manufacturing Thursday -another reasonable number expected, similar to last month
  • UK Retail Sales Thursday
  • US Fed's Yellen speaks at Jackson Hole Friday

Some charts (source Bloomberg):

AU Wages growth remains very weak at 2.60% y.o.y. Note it has been falling since 2011...when will it rise again?

Wages 18Aug14


US 10yr yield continues to fall and is on the way towards the next target around 2.25% (however note that 2.35-2.40% has been an important level in recent years so a sharp rejection off this level would be significant).


US10y 18Aug14

AUS 10yr bond yields are consolidating between 2.30-2.40% 

AU10y 18Aug14


German 10yr yields fall below 1% , well below the EU debt crisis levels in 2011

GE10y 18Aug14

AUD fails to test/break 0.9200 and is now trying to break higher which would suggest a move back towards 0.9450 as our sovereign bond yields remain attractive 

AUD 18Aug14

The DAX bounced last week but the onus is on the 9000 support level to hold.

DAX 18Aug14


RBA Pricing:

RBA Aug18c


More of same - falling bond yields - Weekly Charts

Another week and another rally in offshore bonds although the AUS bonds haven't been able rally as strongly...This time it was weak European data rather than Geopolitical events that drove yields lower. Europe could be the source of volatility in coming months so will be worth watching developments there.

3yrs got knocked back aggressively from 9750 and some range trading between 9725-9750 could be on the cards for some time...inside that look for a 9735-9745 range

3yrs 15Aug14

The 10yr chart is a bit of a mess after looking so strong last week. Taking a step back, 9660 was a medium term target from the original break up through 9610 which occurred in May. So we have been oscillating around this level for the past month or so as the mkt works out what it wants to do next. That could continue for a while longer. 9645 needs to hold on the downside.

10yrs 15Aug14

The curve is marking out a 75-82bp range and should continue in that fashion for a while longer. Still favour a flatter curve over time whilst the RBA remains on hold and offshore bond yields keep falling.

Curve 15Aug14

US 10yr Note. The long tail last Friday night looked like an exhaustion was in place, similar to what we saw late May which led to a 2big figure selloff. However the key reversal higher three days later has possibly negated that risk. The bears need another rejection of last weeks high to suggest this is the top of the range. Watch and see.

TYNote 15Aug14

In yield terms, the break lower looks clearer than the futures and suggests lower yields are likely unless we get a quick pop back above 2.45%.

US10y 15Aug14

AUS-US 10s has resistance near 104bp. A break through that would suggest some sort of low was made and the spread can widen back to 115bp

AUS-US10s 15Aug14


AUS employment concern - Markets Weekly

Markets Key Themes

  • EU data poor, Ukraine/Russia is also weighing
  • Bonds spike but reject the highs on Friday
  • US data strong
  • Stock markets have bounced but bulls must be shaken
  • Geopolitical risks driving markets
  • AUS employment is very weak, 3mth average has collapsed again
  • CH data was good
  • RBA SoMP was broadly as expected although growth and inflation outlook is slightly weaker

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.


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



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