Lessons Learnt, Lesson Forgotten

EU-Sondergipfel zur Schuldenkrise

Lessons Learnt, Lesson Forgotten

That’s how the market feels at present. That’s the way markets have been behaving. After rallying since December on the back of Trump’s populist ideals the equity market has sobered a little and has now taken a few steps. Bonds have rallied as bond investor’s first look to the shape of the yield curve and policy – all 140 characters of it. Bonds have now retraced about 10 basis points from last week as investors start to question policy amid the turmoil of the recent travel fiasco and comments from several of Trump’s Cabinet.

Equity markets were punished a little today as some of the released earnings results were disappointing to say the least. Under Armor, once the darling of the street fell 26% after it posted disappointing sales. To suggest that it would post an increase in sales when it lost a significant customer is hard to fathom. Harley Davidson fell on disappointing sales, but the real worry for me is that both UPS and Fedex fell on an announcement of reduced margins due to eCommerce. Both UPS and Fedex are the lifeblood of the US economy so any reduction in deliveries is not a positive economic signal. Gold rallied on the continuing uncertainty.

The euro had a good day on the back of what appear to be unhinged arguments targeting Germany by Trump and his Trade Adviser. The argument is that Germany is benefiting from a significantly undervalued Euro and that is hurting US business and car manufacturers. It would appear as though part of Trump’s bargaining chip is to place Europe in a difficult position. Ill advised comments are certainly hitting the spot. Whilst Merkel’s position was conciliatory her counterpart the EU President Mr Tusk was somewhat biting in his criticism, labeling a Trump led administration one of the four main threats to Europe. The US is in this cohort with China, Russia and radical Islam as an external threat. Europe is questioning the accord with the US as Trump and his advisers appear to want to undermine or invalidate the transatlantic bond between the US and Europe.

And in another twist the rust belt, the voter base that pushed Trump into the Oval Office require immigration to rejuvenate their ailing to dead economies according to a recent study. It would appear as though those living in the region disagree.

On the day 10 year treasuries finished 2.46%, the Dow was down 0.54%,and oil up 0.4%. The US dollar was weaker and the Euro was up almost 1%.

And in an interesting twist Ray Dalio a leading Hedge Fund manager appears to be signaling along with his peers that maybe they overestimated Trump and the benefit he brings to markets.

Aussie Market Today.

Global equities continued their weak trading outlook and this trend looks set to remain until we get a clearer outline on fiscal stimulus policy and a roll back of regulation. Bonds were stronger as traders questioned whether the economy can grow significantly. I expect equities to be weaker on the day and bonds to rally. With China away markets should remain quiet.

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