Your ASX stock questions answered: Why resources stocks need a strong Australian Dollar

Welcome to our series of tackling the questions we receive from our Weekend Newsletter. If you have any questions – Feel free to reply to the Newsletter email.

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Your content constantly refers to bond yields (2-year and 10-year). Where do I look for a chart that shows these yields? Is there a standard that the authors are referring to? - Peter

When we refer to yields, we'll specify which ones. Most of the time, it's either the Australian or US government bond yields.

The 2-year and 10-year yields can be found across most market-related sites such as Investing.com, CNBC, MarketWatch, TradingEconomics and more.

If you're after a chart, TradingEconomics is probably the most accessible. If you happen to have a TradingView account, you can search them via the following tickers: AU02Y, AU10Y, US02Y and US10Y.

I've observed several cross trades for a significant volume of shares around 4:10 pm. These tend to take place when the company enters a new Index such as the ASX 300. How do the mechanics of these cross trades work and why is the share price not affected? - Todd

Cross trades are typically executed between two counterparties such as two brokers or two asset managers. The trade is not recorded on the public order book and does not affect the share price (although the news or speculation about the cross trade can often move the share price).

When it comes to rebalancing, index funds and other institutional investors need to buy and sell these stocks in large volumes. These trades can be difficult to execute and might disrupt the share price, so cross trades are often used instead. Here's an example of how it might work:

• A fund manager wants to buy 10 million shares of a company that is entering the ASX 300

• The fund manager calls their broker and asks them to execute the trade

• The broker contacts another broker(s) who has a client(s) selling 10 million shares of the same company

• The two brokers agree on a price and execute the trade off-exchange

That's why you'll see a stock that's completely unphased despite experiencing what looks like a 600% spike in daily average volume on rebalance days.

Sometimes institutions might struggle to find a counterparty and be forced to buy shares on-market. This tends to materially push the share price up.

Washington H. Soul Pattinson (ASX: SOL) is a good recent example. The stock closed 3.7% higher at 4:00 pm on Friday, 15 September. But after the closing auction, it was up 6.6%.

Washington H Soul Pattinson daily chart (Source: TradingView)

The most important thing to watch here is how the stock trades the next day. More often than not, it tends to fall back towards the 4:00 pm price. For WHSP, it opened that session down 3.0%.

How are US bond yields, the Australian dollar and Australian resource sector interrelated? What is required to get US bond yields lower, so that the Aussie dollar and resources can rise? - Mark

US bond yields and the Aussie dollar 101:

• US bond yields go up: The US dollar tends to rise and the Australian dollar falls

• Commodities are priced in US dollars: A strong US dollar often depresses global trade, leading a weaker commodity prices

• The Aussie is a commodity currency: Its value is closely linked to the prices of commodities such as iron ore and coal. As commodity prices rise, the Aussie tends to appreciate

In terms of its relationship with the resource sector, you can see that the ASX 200 Materials Index and the Australian dollar tend to move hand in hand.

ASX 200 Materials Index (blue) and Australian dollar (orange) (Source: TradingView)

US bond yields have soared to levels not seen since 2007 as investors price in a higher-for-longer interest rate environment. Historically speaking, the factors that set the peak for bond yields may or may not have sparked some pretty brutal selloffs for markets. I guess that's why everyone wants to see a soft landing.

What's are some ETFs to gain exposure to Europe? - Graham

A few months ago, my colleague Chris Conway kicked off a series about 'Where in the world should you invest' – Which takes a deep dive into key investment regions around the world.

Before we look at ETFs, here are some of the highlights from his Europe piece:

• Europe is home to 9.3% of the world's population

• The European Union (EU) operates as a single market made up of 27 countries

• The EU27 accounts for around 14% of the world’s trade in goods

• Europe is the 3rd largest continental economy, accounting for 25% of global GDP in nominal terms

• The services sector is by far the most important sector in the EU, making up 64.7% of GDP, compared to the manufacturing industry with 23.8% of GDP and agriculture with only 1.5% of GDP

• According to Goldman Sachs, "European stocks continue to trade at a larger-than-normal discount to those in the U.S., and European equities are changing hands at about 13-times forward consensus earnings, versus about 19 times in for their U.S. counterparts.

In terms of ETFs:

• iShares Europe ETF (ASX: IEU) – Provides exposure to a broad range of European companies via a single fund

• Betashares Europe ETF (ASX: HEUR) – A diversified portfolio of large, globally competitive Eurozone companies, hedge into Australian dollars. Top holdings include ASML (semiconductors), LVMH (owner of Louis Vuitton and 75 other luxury brands) and TotalEnergies (diversified energy and renewables company)

• Vanguard FTSE Europe shares ETF (ASX: VEQ) – Exposure to 1,300 leading European companies. Seeks to track the return of the FTSE Developed Europe All Cap Index in Australian dollars.