Equities extend gain amid lower yield, thin volume | CMC Markets Daily Commentary
Today is likely to be a quiet day for global markets, due to the US Independence day holiday. US equity indices moved higher overnight, led by defensive sectors namely real estates (+1.47%), consumer staples (+1.36%), health care (+0.91%) and utilities (+0.85%). Sectors that underperformed benchmark include materials (+0.51%), industrials (+0.53%), financials (+0.59%) and energy (+0.60%). The volume wasn’t inspiring due to shorter trading hours and lower participation ahead of the holiday.
US treasury yields continued their downward trajectory as a disappointing ADP private sector payroll report raised expectations for more rate cuts down the road. The private sector added 102k jobs last month, missing forecast of 140k and marking another soft month in the jobs market following last month’s reading of 27k.
If this Friday’s non-farm payroll come with a big slash, confirming the weakness in the jobs market, the Fed will have a sense of urgency to cut rates at a faster pace.
The 10-year yield has dived to 1.95%, a level not seen since Oct 2016. Lower treasury yields generally push capital into equity assets seeking for higher return, and it also lowers the borrowing cost as many credit bonds use treasury yield as a risk-free benchmark.
However, the fundamental problem of an economic downturn as suggested by weaker macro data hasn’t been properly addressed or adequately reflected into equity prices yet. The US treasury yield curve is getting more inverted and its 3-month to 4-year yield spread hits negative 0.497%.
The US dollar index has changed little last night. Low volatility in the currency and commodity markets might dominate trading until Friday’s non-farm payroll release.
In Singapore, the STI opened mildly higher on Thursday, but is still trying to pierce through the ‘high pressure’ zone of 3,330-3,390 points where the ‘gap down’ in early May lies. The rest of Asia could see a relief rebound as well but weak economic outlook and ongoing geopolitical noises will likely curb excessive risk taking in the short term.
US ADP Private Payrolls Report
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