Yesterday we saw the RBA announce that they are doubling their bond buying to support a market running away. Also, it seems the FED stepped in overnight, seeing the US 10-year bond yields track sideways for the session. This with the progress in Biden stimulus has seen a renewed optimism in markets. If you take away the fear of inflation rapidly rising, then the current environment is perfect for Equities to rise.
That is rates are low and staying low for a while and governments eagerness to continue to spend large to help Economies recover. There is also light at the end of the tunnel with Covid as Vaccines continue to be rolled out. The big one for me is that Central banks are trying to get inflation back to 2 – 2.5% and are happy for it to sit at the higher part of that range for a while. This has produced a do whatever it takes approach to monetary policy. Looking at how much the US markets rose through QE one two and three after the GFC, it is likely there is a lot more movement to the upside to come in the next few years.
In the US, Tech outperformed overnight, but the recovery Value space also saw a lot of attention. All sectors closed in the green which is a strong bullish sign for the market. This says to us that Investors are eager to get back into equities. Also do not forget the selling in the bond space means investors are cashed up and looking where to invest next. The only thing left in the short term is Bidens 1.9 billion stimulus which will need to pass the Senate.
The XJO is expected to have a soft open this morning as it weighs both the falling bond yields Friday and the potential passing of stimulus from U.S congress announced over the weekend. The U.S was lower on Friday, but our market arguably had priced that in during our session. U.S futures sit flat to in the green, so our market is likely to need stronger leads during our session in order to make any sort of decent recovery.
What is likely to help the recovery or at least keep our market buoyant is the strong falls in the AUD which notably help our miners.
Things seem tentative at the moment, and the market is deciding if the recent selling is a simple flash in the pan, or the sign of a short-term correction.
Locally we have the RBA cash rate tomorrow, where the market will be listening to what Lowe will say about the future of inflation. The cash rate is expected to remain unchanged.
US shares rose strongly overnight, with shares recording their biggest one-day rise in nine-months. The S&P 500 index has now rallied 75 percent from its lows 12 months ago. US economic data continued to be strong, with manufacturing data overnight showing a bigger pick-up than expected.
Eyes now turn to the US senate, who will soon vote on President Biden’s $1.9trn stimulus proposal, which was passed by the lower house over the weekend. Government bond yields in the US also fell overnight, helping ease some concerns for the market. Tech stocks were the strongest performers overnight, while Oil & Gas, Basic Materials, and Financials also rose strongly; every major sector closed higher to some degree.