Now for a big rumble in markets across Asia today, starting with the US after Wall Street staged its now usual sell-off ahead of a looming change of Fed monetary policy.
The big jobs report for the US for last month – 295,000 new jobs and an unemployment rate of 5.5% – saw the US dollar jump, bonds rates soar and the sharemarket plunge by as much as 1.5%.
In fact Wall Street dropped sharply across the board, the US dollar rose, the Aussie dollar fell, bond yields in the US jumped, gold fell, as did oil and copper, while iron ore continued falling, so it’s no wonder our market is facing a fall of 64 points, or more than 1%, according to the futures market when trading resumes this morning.
Each time (three at least) since 2010 when the US Federal Reserve has started talking about ending its program of quantitative easing, Wall Street sells off, bond yields rise and the US dollar jumps in value.
And when the Fed’s spending program actually ends, markets settle down and shares recover their earlier losses.
It is a real knee jerk reaction from hedge funds and other big investors and it seems to have been no different on Friday in the wake of the jobs report.
And we can expect more of the same sort of volatility from now on until the Fed makes a decision on rates.
It is a market overreaction that every investor should be aware of.
So Friday’s losses gave Wall Street a second straight losing week in a row – down 1.5% as the S&P 500, the key market benchmark, suffered its biggest drop in two months.
While the US fell though, European shares gained another 0.7% over the past week helped by continued good economic data and Japanese shares rose 0.9%, but Chinese shares fell 2.1% and the Australian market lost 0.5%.
The loss for local shares last week came after the ASX 200 almost nudged the 6000 point mark but then fell, partly in response to the RBA leaving interest rates on hold last Tuesday.
For US investors, the strong jobs report and the next Fed meeting next week, will strengthen the belief that US rates are going to rise, meaning bond yields will rise, along with the greenback.
As a result of that thinking on Friday night, bond yields rose, led by US bonds (up to 2.24% for the key 10 year security, which hit a low of 1.64% in January) as investors factored in an earlier than expected rate rise.
Those bond yields will be a major driver for US market sentiment until the Fed actually makes a decision.
For Australia, the iron ore price is the major driver of sentiment and it continued falling below $US60/tonne mark on Friday night (see separate story).
This is why the prices of shares in BHP Billiton, Rio Tinto and Fortescue Metals Group will remain under pressure.
The rise in US bond yields saw the $US continued to rise, which pushed the Aussie dollar down to 77.16 USc and looking to head back down towards 76c.
Gold and copper also fell along with oil, meaning our market has a range of negative factors to deal with today.
So it is little wonder the futures market was pricing in a 64 point fall at the start.
In the US, the S&P 500 fell 29.78 points, or 1.4%, to 2,071.26, to be down 1.6% over the week.
The Dow dropped 278.94 points, or 1.5%, to 18,056.78 and lost 1.5% over the week (at one stage it was down well over 300 points on Friday night).
But a better performance came from the Nasdaq Composite which ended the day down 55.44 points, or 0.3%, at 4,927.47 and for an 0.7% loss over the week.
Watch for Apple shares to take a bit of a run – it is launching its new watch tonight in the US, and has just been promoted into the Dow Jones Average for the first time, meaning tracker funds that follow the Dow will have to load up on Apple shares.
