POSTED BY ANGUS GEDDES
In Australia, the market enjoyed a positive session to start the week with the ASX200 rising by 0.36% to 5724. Sentiment took a lead from strength on Wall Street, following the strong US jobs numbers, and low wage growth. I think the latter will not persist forever, and when it finally does will be the catalyst for much higher levels of inflation.
And when we do get those higher levels of inflation, that is going to be the straw that breaks the bond bull market’s back. We will see yield break out to the upside, and this will have significant implications for the stock market, and certain sectors in particular. Insurers with low duration bond portfolios will benefit as investment income rises, and this is a reason we continue to favour QBE Insurance, whose share price is highly correlated with the 10 year US Treasury yield.
The shares have had a setback following the recent profit warning, but taking a balanced view, this was centred around claims experience in emerging markets. Other regions are performing well, and premium income is on the rise – this will go even higher once inflation comes through the system. Perhaps this is dawning on parts of the market, with the shares having a better day on Monday, rising 2.8%.