Australian shares are set to drop after a shock UK inflation report sent bond yields soaring and US Treasury secretary Janet Yellen doubled down on a warning the country would run out of cash by June 1.
Yields on securities due in early June surged as investors steered clear of more at-risk bills, with the rates on at least one instrument topping 7 per cent, more than 4 percentage points above instruments maturing May 30, while other securities in the first weeks of June also saw their yields leap.
“History tells us that US will wrestle with this notion of default but come the 11th hour it gets resolved,” she said. “And I have confidence that they will again.” Swap contracts priced in as much as 12 basis points of tightening in June, a new high since the last central bank hike on May 3, spurred in part by surging UK policy rate expectations after the upside surprise by British inflation data.&Tesla -2.0% Apple -0.3% Amazon +0.8%On bitstamp.net, bitcoin was down -3.8% to $US26,215 near 3.17am AESTOn Wall Street, shares took a dive. The SP 500 was 0.9 per cent lower in afternoon trading, a day after dropping 1.1 per cent.
Liz Young of SoFi said the market showed “pretty classic late cycle behaviour,” although she warned the late cycle could last up to 18 months. She sees enough evidence to stay cautious over the next six months or so, while remaining invested for longer-term horizons.Markets slumped across the board after a horror UK inflation report, showing prices fell by less than expected while core inflation surged to a 31-year high, bolstering the chances of more rate rises.
Traders are nearly fully pricing in a 25-basis point hike by the Bank of England in June, which would be the 13th straight hike by the British central bank.Bank of England governor Andrew Bailey denied that the UK is suffering from a wage-price spiral but admitted that the central bank is grappling with stubborn core price pressures and a “very tight labour market.”
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