ONE PERFECT DAY!

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One perfect day, I will get a telegram of peace and one perfect day, all my trades will come good. One perfect day, the markets will react as expected. And today maybe that perfect day, for at least some of the above.

Today at 9 am, the great opportunist meets the great dictator and the world holds a bated breath in anticipation. Kim has already signalled some intentions and caught the U.S. Administration off guard. You see, everyone thought this conference would go on for a few days when in fact Kim is looking to head back much sooner with arrangements being made as early as this evening. The geopolitics is intriguing.

On the one hand, a desirable outcome for the West is a cessation of hostilities and an opening of the North Korean economy and possibly becoming a friend of the West.  On the other hand, the dichotomy is that China, the one major ally of North Korea, wants peace, possibly denuclearisation but not necessarily an overly friendly North Korea with the West. It’s a very fine tightwire these nations are walking.

For markets, all our energy will no doubt be focussed on 9.01am, that’s a minute after Trump meets Kim and the time that Trump suggested that he would know whether a deal would be made or not. Hyperbole no doubt but we will all be hovering over our Bloombergs and Reuters and every other news service to get the first move advantage.

For markets, this is a bit of a respite.  However, Wednesday we will focus on the Fed and Thursday for the ECB and any announcement of the ending of QE. For traders and investors alike, the ECB news will be important and so too any comments from the Fed following its as expected hike this week.

Bond investors and traders are already signalling their intentions.  And being short is popular. The repo rate is now around 1.75%, indicating the treasury market is becoming progressively shorter. This is all intriguing as the bluster around trade from the G7 meeting would indicate that the outcome was noise and that free trade will continue.

This is a dangerous thought as the Trump Administration is single minded on trade and will most likely seek to impose tariffs shortly. The imposition of tariffs will see prices of goods in both the U.S. and other G7 countries rise. A rise in inflation and a slowing of economies is a logical outcome.

For end investors, they appear to be at odds with the trading fraternity. The 10-year auction saw solid demand from indirect bidders. Indirect bidders are fund managers, central banks and investors. This was the largest share for some time.  Meanwhile, primary dealers took a lower than average share of the auction at 28%.

The ten years rallied post the auction. All eyes will be on the Fed Wednesday and how the voting clique voted. In essence, investors and traders will be looking towards intentions and any changes in guidance from three to four hikes for 2018.

Italian bonds rallied on the day. The rally was on the news of Italy’s Tria saying he had no plan to leave the euro. Italy’s two-year bond tumbled 60 bp to close at 1.08%. Ten -years fell 30bp to close at 2.83% the biggest one-day rally in six-years. The bund/ btp spread is now at 235 bp from 268 bp on Friday.

 

Recap.

Equities: The S&P rose 0.3%.  The Dow rose 0.02% and the Stoxx rose 0.7%

Currencies: The Bloomberg Dollar Index rose 0.3% while the euro gained 0.1% and the yen fell 0.4%.

Bonds: The ten-year closed around at 2.95% while the 2-year closed at 2.524% and the 30-year closed at 3.093%. The ten-year bund closed at 0.493% and the UK gilt closed at 1.409% and the OAT closed at 0.853%.

The U.S. curve closed the day with the following closes 2/10 at 42.8 bp, 2/30 at 57 bp and the 10/30 closed at 14.1 bp. The U.S. 5-year closed at 2.796%.

Commodities: WTI rose 0.5% and gold rose 0.2%.

Bitcoin is trading around $6769. Bitcoin is now down about 52% since the beginning of the year.  This recent hacking of a Korean exchange is the reason why bitcoin is trading at current levels.

The problem with the blockchain currency is that once the code has been stolen proof of ownership moves with the hacker.  Hence, it is hard to prove ownership. This is something blockchain has to sort out. Legal ownership is an important right and loss of money in a wallet is akin to loss of money in a Bank through fraud. At present, it is the wild, wild, west.

Aussie Market Today.

The Aussie market will likely see bond buying as a result of offshore purchases. The equity market to be steady ahead of the weekend.

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