Thursday 05, October 2017 by William Mullally

Spanish shares and bonds fall sharply

Mihir Kapadia, CEO and Founder, Sun Global Investments

Mihir Kapadia, CEO and Founder, Sun Global Investments

US stocks advanced modestly on Wednesday with the third consecutive all-time high close. The Dow Jones Industrial Average gained 5.2 points, or 0.02 per cent, to 22,646.87, while the S&P500 rallied 3.05 points, or 0.12 per cent, to 2,537.63.

Markets are responding positively to the better economic numbers, the prospect of large tax cuts and the receding of geopolitical tensions regarding North Korea. If the strong economic numbers are sustained (and Friday’s US jobs number will be the next key piece of evidence no that) and the Trump Presidency delivers on Tax cuts, it is likely the equity markets will rise higher over the next few months.   

On the other hand, higher growth will lead to fears of greater inflation and tax cuts will lead to higher deficits and increased government borrowing. These factors combined with interest rate increases in 2017 and 2018 as monetary policy is normalised will be negative of US Treasuries and developed market bonds. The US 10yr closed unchanged at 2.33 per cent and the US 2yr yield rose 0.01bps to 1.471 per cent.

In overnight trading in Asia many key markets remain closed. Japan is open but struggled to make much progress despite a weaker yen. Most of the other markets in Asia which are open, are higher.

Spain continues to be a key highlight for the markets. Catalonia seems set on course towards declaring its secession from Spain after separatist parties requested the regional parliament convene on Monday to review the results of this week's independence vote. Spanish shares and bonds fell sharply yesterday. 

 

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