This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia. This past week was an object lesson in the power of the Bond market. And not for the first time. A favourite quote on markets comes from the former CEO of Citicorp, Walter Wriston, who observed that, “Capital goes where it is welcome and stays where it is well treated. Remember those Words.
I made shows through the week about the fallout from the Trump tariffs and the subsequent 90 day pause of the reciprocal tariffs, the extra hikes directed at China, and China’s escalation back, (Beijing increased its tariffs on U.S. imports to 125% on Friday after Trump’s move to hike duties on Chinese goods) and the turmoil on financial markets, especially a significant sell-down in US Treasuries. This lifted yields (remember bond prices and yields move in opposite directions), with the 10-year up 12.4% across the week to 4.494, while the two year was up 9.07% to 3.970. The long 30-year was up a massive 10.39% across the week, even though selling partially reversed as the Friday session progressed. This is NOT normal. Rumours went around it was China, or Japan selling bonds, but more likely it was driven by hedge funds caught out of position. “Until Treasuries stabilize and start to behave normally, risk assets will struggle,” Barclays analysts said in a note on Friday.
Normally, bond markets, though a huge element in the financial system do not make moves of this scale, after all they are meant to be the safe, secure, boring backstop to the financial system. Macro commentator James Aitken told his clients. “Financial history reminds us that when a policymaker tells hyper-financialised markets he or she is not targeting markets, markets will force the policymaker to target them. Indeed.
In Asia, Japanese stocks were by far the worst performers, given that the country holds large export exposure to both the U.S. and China. Mainland Chinese stocks fell relatively less than their peers, boosted by apparent buying by state-backed funds – China’s so-called national team.
The Australian share market closed lower on Friday, sealing a week that had the exchange record some of its most outsized moves since 2020 as a trade war between the world’s two largest economic powers gathered momentum. The S&P/ASX 200 fell 0.8 per cent, or 63.1 points, to 7646.5 points at the close. The index dropped more than 2 per cent earlier in the session, but improved in afternoon trading as US futures climbed. The ASX 200 tumbled around 0.3 per cent this week – its second consecutive weekly loss.
Investors are redirecting money once bound for Wall Street and fast-growing Silicon Valley tech giants back towards the Australian share market as intense volatility in the United States turns the ASX into a safe haven. Despite a drop on Friday taking the S&P/ASX 200’s falls this year to 6.3 per cent, the local benchmark has performed far better than Wall Street, where the S&P 500 is down more than 10 per cent and the NASDAQ some 15 per cent.
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