US interest rates dominate investors’ minds

“Investors are totally pre-occupied with the next move on US interest rate,” said Gary Huxtable, client adviser at Atlantic Pacific Securities. 

“With the market pricing in over a 60% chance of an interest rate hike this year, investors have moved from whether there will be a rate rise this year to a more focused outlook of the timing. It feels like investors are thinking it is not a question of if, but a question of when.”

Jobs data the next catalyst

According to Huxtable, as it stands now, “Friday’s US non-farm payrolls looms as the next catalyst to change this dynamic. A strong result will place a September rate hike on the cards,” said Huxtable. 

Stock rotation in action

At the same time, he noted the stock rotation out of bond proxies into financials and cyclical names.

“On the back of this outlook, investors have been re-positioning themselves this morning, with telecommunication and utilities underperforming the index,” he said. 

“With financials and materials underperforming over the last 18 months, the confidence and visibility in the earnings of the utilities and telco sector have lead them to become market darlings, as investors chase yield in these names,” he said. 

“We saw the likes of Fortescue Metals Group enjoying a strong start to the morning despite a lacklustre performance from commodities overnight,” he said. 

According to Huxtable, “Financial stocks have been impacted by a flat yield curve over the last 12-18 months, and as we saw last night with financials leading the index in the US, our banks are also enjoying some buying pressure this morning, as they stand to benefit from a higher interest rate environment. Friday’s Non-farm payrolls will be crucial to see if this dynamic continues to play out moving forward,” said Huxtable. 

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For more information, visit: http://www.apsec.com.au/