Meowwwww – that’s the sign of yet another dead cat bounce on the ASX as markets around the world made fools of local investors who boosted the ASX by more than 60 points, or 1.1% off the back of higher iron ore prices in China and the surge in bank shares in the wake of the positive news on US stress tests.
Asian markets also rose with Australia, but the colour turned to red in Europe with falls of 1% to nearly 2%, and the negative trend continued in America with the Dow down nearly 0.8%, the S&P 500 off 0.86% and the Nasdaq fell 1.44%, the second 1% slide for the tech heavy market this week.
The Australian market will be down more than 70% – a 130 point turnaround from Wednesday’s optimism which flew in the face of the changing sentiment among investors offshore that the long period of ultra cheap money was ending.
The change in sentiment saw markets shaken on Tuesday, steady a little on Wednesday and slide on Thursday in Europe and the US and that will be the trend now until they can convince themselves that nothing major has changed.
While bond yields remain very low, recent remarks by the heads of the European Central Bank, the Federal Reserve, the Bank of England and the Bank of Canada have convinced many investors the period of ultra-low interest rates and the unprecedented central bank bond buying is about to end.
Those concerns sparked a sell-off in bond markets that deepened and dragged markets lower on Thursday with Europe seeing the biggest sell-off since last September and the second shaking on Wall Street in three days.
Investors are blaming comments by ECB chief Mario Draghi earlier this week that the eurozone was headed towards “reflation”, which an increasing number of traders believe is a signal that the the ECB is about to follow the US Federal Reserve start slowing its huge (60 billion euros a month) bond-buying programme. That would be seen as a defacto tightening of monetary policy
The ECB sought to quell these fears on Thursday with a clarification of what Mr Draghi had really been saying, but investors matched those words to comments from Fed chair, Janet Yellen and Bank of England boss, Mark Carey (especially abut a possible rate rise in the UK), and concluded the easy money, quantitative easing policies are about to end.
The European bond market sold off with yields on key 10 year securities in Germany, France and the UK all rising. In Asia, Japan’s 10-year bond yield was steady at around 0.05% due to the Bank of Japan’s commitment to keeping the rate pinned at near zero, but the government bond markets of the rest of Asia and Latin America also saw a nasty steep sell-off on Thursday. In Australia, yields on the government’s 10 year security rose 5 points to 2.50% overnight, according to Bloomfield.
Adding to pressures in the US is the growing belief that the big cap tech stocks – Apple, Netflix, Microsoft, Amazon, Alphabet (Google) and others have all had their day for the time being and valuations have run ahead of reality.
