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ASX set to edge higher on back of soft Wall Street lead

Stocks were mixed in afternoon trading on Monday (US time) as Wall Street continues to eye the bond market, where yields pulled back a bit from Friday’s sharp increase.

The S&P 500 index was down less than 0.1 per cent in early afternoon trade as rising technology and consumer discretionary shares were offset by declines in banks and energy stocks. The Dow Jones Industrial Average is 0.1 per cent higher while the Nasdaq Composite has added 0.2 per cent.

Rising interest rates continue to be a key concern for investors following the sudden jump over the last month in bond yields.

Rising interest rates continue to be a key concern for investors following the sudden jump over the last month in bond yields.Credit:AP

It sets up the Australian sharemarket to edge higher this morning, with futures at 5.03pm pointing to a gain of 9 points, or 0.1 per cent, at the open.

Investors’ focus remains on the recovery of the US and global economies from the coronavirus pandemic. The $US1.9 trillion ($2.5 trillion) aid package for the US economy has lifted investors’ confidence in a strong recovery from the pandemic in the second half of the year, but also raised concerns about a potential jump in inflation.

President Joe Biden also laid out a plan, in a prime-time speech last Thursday, to expand vaccine eligibility to all Americans by May 1, which should also translate into faster economic growth.

Rising interest rates continue to be a key concern for investors following the sudden jump over the last month in bond yields. Rates are not yet at a concerning level, and both the markets and economy can easily digest them, said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

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“The question ultimately becomes how well markets can digest and stay the course on the idea that these increases are temporary,” he said. “As well as coming to terms with the idea that temporary might be three or four quarters.”

Bond yields ticked mildly lower on Monday, with the 10-year US Treasury note falling to 1.61 per cent from 1.62 per cent on Friday. The mild drop in yields was impacting bank stocks the most, where investors have placed big bets that higher yields would translate into banks charging borrowers higher rates. Bank of America was down 1.2 per cent, Wells Fargo was down 1.2 per cent and Citigroup fell 1.6 per cent.

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