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A see-saw week for Australian stocks looks set for a sour finish after a dramatic spike in bond yields triggered heavy selling on Wall Street.

US stocks tumbled after the yield on ten-year US treasuries surged more than 16 basis points in what some analysts termed a “flash spike”.  

ASX futures slumped 97 points or 1.43 per cent. A decline of that scale at this morning’s open would erase the S&P/ASX 200’s gains for the week.

Precious and industrial metals declined. Oil’s benchmarks were mixed. Iron ore edged higher. The dollar fell back below 79 US cents.

Wall Street

Volatility in bond markets spilled into equities. Investors dumped risk assets as the ten-year US yield briefly soared above 1.6 per cent, its highest level in a year. A brief mid-session recovery in stocks faded as the session neared its end.

The S&P 500 finished with a loss of 96 points or 2.45 per cent, just above its session low. The Dow Jones Industrial Average gave up 560 points or 1.75 per cent. The Nasdaq Composite shed 479 points or 3.52 per cent as debt-dependent tech stocks led the retreat.

It was “just a full on rout in the bond market. So that filters into everything else,” Evercore ISI strategist Dennis DeBusschere told CNBC. “It looks like we just had a flash move in bonds. With a puke move that drove yields to 1.6%… We just have to wait for some form of equilibrium in bonds.”

Traders dumped equities as the rise in yields erased the investment premium stocks held over bonds until last night. The dividend yield on the S&P 500 stands at around 1.43 per cent, according to CNBC. The fear is that fund managers will now divert larger shares of their portfolios from equities into the relative safety of bonds.

The scale and pace of the surge in yields drove Wall Street’s “fear gauge“, the VIX, up 34.5 per cent. The tech-heavy Nasdaq bore the brunt of the selling. Cyclical sectors weathered the storm better than growth sectors with higher valuations, but there was red across the boards.

Wall Street has struggled for traction over the last two weeks in the absence of obvious catalysts.

“In the beginning of February, the stimulus news was the driving force but now that it has been priced in, there is nothing on the distant horizon for equity investors to be excited about and there is a concern that upside is limited,” Mike Zigmont, head of trading and research at Harvest Volatility Management, told Reuters.

Australian outlook

A tough, “risk off” session coming up following one of the most startling nights on bond markets in years. Federal Reserve Chair Jerome Powell appeared to have settled inflation jitters over two days of congressional  testimony. But as soon as he stopped talking? Boom.

The S&P/ASX 200 has gone back and forth all week, but looks destined for its lowest levels since the first week of the month. Today’s open will erase yesterday’s 56-point rise, plus some more.

There is not a lot to be gleaned from US sector analysis this morning: they were all different hues of red. Technology dived 3.5 per cent, consumer discretionary (Tesla, Amazon) 3.6 per cent and communication services (Netflix, Facebook, Alphabet) 2.6 per cent. Materials shed 2.4 per cent, energy 2 per cent and industrials 2 per cent. Utilities was the best of a rotten bunch with a loss of 1 per cent.

It is going to be a tough day to report earnings. Among those on the chopping block on the last day of the interim earnings season are Kogan, Northern Star, BWX and Waypoint REIT (sources: CommSec, TradingView).   

Last night’s ill winds at least put a temporary halt to the dollar’s charge at 80 US cents. The Aussie skidded 1.22 per cent to 78.78 US cents.

Commodities

BHP and Rio Tinto reversed in US trade after rises in Australia and the UK. BHP’s US-listed stock lost 2.06 per cent after its UK-listed stock gained 1.12 per cent. Rio Tinto shed 1.82 per cent in the US and added 1.97 per cent in the UK.

The spot price for iron ore landed in China rose $1.80 or 1 per cent to US$174.30 a tonne. Copper dropped 0.9 per cent to US$4.2635 a pound.

Gold fell for a third night. Metal for April delivery settled $22.50 or 1.3 per cent weaker at US$1,775.40 an ounce. The NYSE Arca Gold Bugs Index fell 3.5 per cent.

Oil survived the turmoil in other markets with minimal damage. Brent crude eased 16 cents or 0.2 per cent to US$66.11 a barrel. The US benchmark crept up 31 cents or 0.5 per cent.

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