THE MONSTER IN YOUR MIND.

Syria

The good times lasted barely two days before the monster in the mind reappeared causing markets to stall. It’s all mind games at present with little or no evidence, nothing anecdotal, just mind games.

So, what are the mind games? Simply put geopolitical risk has now escalated. Trump, fresh from what some may call a win against Kim Jong Un, is now trying his hand against a much wilier opponent, Russia. Trump rattled Putin’s cage today after he sent a tweet warning the Russians in Syria that bombs, many bombs were coming. The bombastic and provocative approach dismayed the equity market and after a strong start to the day, finished lower.

Trump was not the only cause for the fall on the day. The Fed released its minutes from the March meeting and appears to be taking a more hawkish approach. Many equity analysts had been thinking three rate hikes for the year whilst many bond analysts are expecting four.

The news of a more aggressive approach and an unexpected willingness to increase rates caught equity investors out. Volatility is rising and investors should expect more volatility as a result of uncertain politics in the U.S., geopolitical risk, and a hawkish Fed. Volume of trades on the day was light with 6.04 billion shares trading compared to an average 7.29 billion shares.

Core inflation, which was the data that everyone was looking for on the day, seemed somewhat irrelevant. Core inflation rose 0.2% in March and was in line with expectations.

Bonds had a good day. Buoyed by the news that the Fed was showing a willingness to act and keep inflation under control led to a small buying spree with the yield curve flattening a few pennies. The risk off trade that was so unpopular earlier in the week suddenly became the popular trade again.

Aluminium approached a six year high as the LME and Comex will no longer accept deliveries from United Co. Rusal, as the Russian smelter is affected by U.S. sanctions. The metal was up 3.5%. Glencore declared force majeure on 50,000 tons from the Russian smelter.

Oil surged on the heightened geopolitical risk and is at the highest level for some 3 -years.

Recap. 

Equities: The S&P 500 fell 0.6% The Dow fell 0.9%. The Stoxx fell 0.6%.

Currencies: The Bloomberg Dollar Index was down 0.1%.

Bonds: The ten-year closed around at 2.78%. The 2-year closed at 2.307% and the 30-year closed at 2.994%. The ten-year bund closed at 0.497 and the UK gilt closed at 1.39%.  The OAT closed at 0.737%. The U.S. curve flattened to close 2/10 at 47 bp, 2/30 at 68.4 bp and the 10/30, closed at 21.2 bp. The U.S. 5-year closed at 2.61%.

Commodities: WTI rose 1.9% on. Gold rose 0.9%. Copper fell 0.8%.

Bitcoin is trading around $6,886.

Aussie Market Today.

Heightened risks stemming from increasing geopolitical risk will dominate the day’s trading expectations.  In other words, I have no idea.  A lot depends upon whether missiles are launched towards Syria as Trump has hinted and any response if any occurs.

I expect that equities should fall as a result of today’s events as investors seek to protect their gains by taking risk off the table.

Bonds should be stronger on the day as a result of heightened tensions, flight to safety and risk off.

The day should be volatile and as such should create opportunities. Any trades at present should be viewed as a short term trade.

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