Markets: Another Solid Week For Shares As Bonds Lose Their Bloom

Another solid week for markets, even if the finish on Friday night in the US was uneven.

On Wall Street, the Standard & Poor's 500 Index managed to close slightly higher at 1,404.16, its best level since June 2008 - though it was held Friday by weaker than expected data covering US industrial production for February and March consumer sentiment.

That left Wall Street with solid gains for the week, a story that was matched by good gains in Europe and by markets in Asia.

US consumer price inflation in February was softer than expected, and the euro rose nearly 1% to $US1.3178 and the Aussie dollar ended at $US1.059.

Commodities were mostly in demand, with copper up for most of the day before a late slip into the red.

Brent crude oil in London rose 2.8% to $US126.09 a barrel and US crude ended 2.4% higher at $US107.15.

But gold was a misery, a nasty sell off during the week left it flattened and it ended up $US1 an ounce on Friday at $US1661, more than $US50 an ounce lower than a week earlier.

In the US the Dow fell 20.14 points on Friday, or 0.2%, to 13,232.62, the first loss in seven trading sessions.

But the index still ended the week up a solid 2.4%.

The S&P 500 added 1.57 point, or 0.1%, to 1,404.17 and also rose 2.4% from the week-ago close.

And, thanks to another strong week for Apple, the Nasdaq Composite index rose 2.4% over the week, despite easing by 0.04% on Friday to 3,055.26.

The week's big development was the break higher in US bond yields as it became clear the Federal Reserve won't be moving to a third round of easing.

The strength of the economic rebound at the moment is too strong for that and investors have finally twigged to that fact.

So up went bond yields with the benchmark 10 year bond yield finishing up 0.30% at 2.30% on Friday night.

They hit a week's high of 2.36% on Friday.

US treasuries suffered the biggest loss for eight months, according to Bloomberg data.

In the UK, government gilts suffered their biggest weekly loss in three years on the change in sentiment.

That's a decisive move upwards in yields (and means big losses for those long bonds) and it dragged up Australian. German and UK bond yields by Friday.

The AMP's chief strategist, Dr Shane Oliver warns the outlook for bonds could be dicey.

He wrote at the weekend: "Sovereign bonds in core countries are terrible value with yields recently plunging to multi decade lows and in some cases record lows.

"At the least this points to poor returns ahead. At worst we could see a repeat of the bond crash of 1994.

"The latter seems unlikely though given that the economic recovery is still fragile and the Fed would intervene at some point to keep bond yields down.

"Either way though the outlook for returns from sovereign bonds in major countries is poor.

"The realisation of this could see a reversal of the huge global inflows into sovereign bond funds seen over recent years, with the freed up funds looking for a home elsewhere possibly in shares."

Dr Oliver says that rising global share markets "are likely to pull the Australian share market higher but it is likely to remain a laggard on the back of relatively high interest rates in Australia, the strong $A and worries about a hard landing in China."

"The lagging nature of the Australian sharemarket is highlighted by the fact that while the US share market as measured by the S&P 500 is only 10% below its 2007 pre-GFC high, the Australian share market is roughly 37% below its 2007 high," Dr Oliver wrote.

Following Friday's US trading, the local market will open slightly higher today, with the share price futures contract showing a 30 point rise - strength that was at odds with the confused end to trading on Wall Street.

Both the ASX200 and the All Ordinaries closed basically flat on Friday, capping a weekly gain of about 1.5%, which was one its better weeks for some time.

The local market is down 6% over the past year compared with a gain of 9% for the S&P 500.

The MSCI Asia Pacific Index rose 0.8% last week and is now up 20% from the lows of last October.

The MSCI Index is up more than 12% this year as well.

Australia has not kept pace with the gains in markets like Tokyo and instead we seem to be almost lockstep with the Chinese market which has under-performed for much the same reasons: worries about the health of the Chinese economy.

The ASX 200 ended flat on Friday, Seoul's Kospi and Hong Kong's Hang Seng Index shed 0.2% each.

Tokyo's Nikkei Stock Average was little changed after seesawing between gains and losses.

China's Shanghai Composite was the day's best performer among major markets, rising 1.3% to 2,404.74 after dropping in the last two sessions.

But the index still ended the week with a 1.4% decline.

Other than Shanghai, all the other indexes ended up during the week.

Japan's Nikkei jumped 2%, the Kospi rose 0.8%, the Hang Seng Index added 1.1% and Taiex climbed 0.5%.

The Nikkei is up around 20% for the year, with most of the gains coming after February 14 when the Bank of Japan revealed an official inflation target of 1%, the first such target ever.

The yen fell for a sixth week against the dollar, its longest losing streak in three years, and is now down 6.5% in the past month.

In Europe the Stoxx 600 Europe Index climbed 2.6% to 272.40 during the week.

That left it up around 11% for the year to far.

Markets rose in all of Europe's 18 western markets except Portugal.

France's CAC 40 Index jumped 3.1%, the U.K.'s FTSE 100 Index added 1.3%, while the Dax in Germany surged 4%.

The German market is the word's best performer so far in 2012, followed by Tokyo.