An extraordinary day with an extraordinary result, a new high for the equity markets and all this on a presumption that Trump will be able to enact his fiscal stimulus, with no one apart from Donald knowing just what that stimulus is.
So both bonds and equities advanced, which is interesting. Optimism reigns but one has to wonder how long before the hangover hits. Equity is rallying because they feel that infrastructure will lead to higher corporate sales and hence profits although the consumer still appears to be hanging on to their cash. Restaurant sales are down a little and this is symptomatic of the conundrum which is the US economy.
Bonds rallied a little and this trend was followed on from Europe where European Bond investors are waiting for the ECB Stimulus. Since the weekend referendum in Italy, Italian bonds have rallied some 5 bp and are now 9 bp stronger from the weekend. So much for the expected sell off. European Bonds were better on the day with 10 year Bunds closing around 0.33%. The Markit iTraxx rallied 1 bp. Oil was off slightly, while copper was a 0.5% stronger. Steel rebar was stronger in China and iron ore is now close to the highest level for some two years. The Vix surprisingly rose, the best reason one could attribute was because Bio Tech shares weakened on the day. Finally the signal some bulls appear to be waiting for is the Transport Index. Transport shares have steadily gained as investors see a stronger economic outlook. This indicator could be the harbinger of solid economic growth.
The Trump Administration is set to rein in the Fed. “The incoming administration is supportive of Congressional led efforts to restrict the Federal Reserve’s ability to conduct monetary policy” (Bloomberg). The Administration wants to take away the discretionary powers of the Fed with respect to monetary policy. This is just another one of Trump’s initiatives to cut regulatory involvement. What will be interesting to see, will be how all this pans out with unrestricted business and less government intervention.
Aussie Market Today.
The bonds were stronger in the US, and this could possibly continue. Look for a slight improvement. With many of the commodities that Australia sells into China being stronger look for a stronger equity market on the day. The Aussie is continuing with its strength and I suspect this has a lot to do with a strong commodity market especially in base metals and iron ore.