JUST ANOTHER MANIC MONDAY?

36834567495_7dc984f943_bPerhaps? Mueller set in motion his prosecution of Manafort and Gates and the tactic of isolating each party appears to have worked at least to this stage. Manafort is being examined for his Russian links and money laundering and his attempt to hide moneys. Simple things like concealing $450k on landscaping and $850 k on clothes are just a few red flags that were raised. For Trump this is not such a problem yet. George Papadopoulos has already pleaded guilty.

However, Mueller is focussed on the money trail and that is something perhaps that could make Trump uneasy. Trump in the past has had strong associations with people like Felix Sater of the Bayswater Group. Felix is sometimes referred to as someone who has strong links to Russian underworld business dealings and possibly a career criminal.

Kushner too should be concerned as Mueller is examining his trail as the family try to save the 666 Fifth Ave Building. Kushner sought help from a number of Chinese financiers and also spoke with A Russian Banker although he denies he asked for a loan.

Meanwhile, Trump has been madly tweeting to try and deflect and make the prosecutions appear as if they predate the Presidential campaign. Trump has tried to link the dots with the Steele dossier which was prepared by the Democrats. It sought to expose Trump’s Russian dealings which of course they were unable to find any evidence.

So, on the news of Mueller taking the first steps in prosecuting Manafort, the equity market staged a slight tumble.  Ten-year bonds rallied to close below 2.4% and the rest is history. At this stage markets look likely to remain quiet until perhaps Thursday where some reports suggest that the new Fed Chairman will be announced.

The markets appear to be leaning toward Powell but the cynic in me believes otherwise. The appointment of the Fed Chair is captivating television. That’s what makes me believe this reality show has another twist where the favourite no longer is the favourite. Trump loves chaos, and this goes with the narrative.

All this noise was not good for equities. There is concern that lawmakers are now discussing a gradual phase in of the much-anticipated tax cuts.  A gradual phase in was not what the equity market was expecting. Investors are also digesting just what these indictments mean.

The Fed meets Wednesday. However, it is unlikely that rates will be changed. That change looks more likely in December.

As over half the corporates reporting have reported earnings looked to have grown at around 6.7% which is better than the 5.9% expected at the beginning of the month.  October jobs are due Friday.

Bonds rallied on the news of the corporate tax cuts being phased in over a five-year period and the political uncertainty of the indictment of Manafort. The 30-years rallied after Mnuchin said that the government does not see much demand for ultra-long bonds.

Recap:

Equities: the S&P 500 lost 0.3%, the Dow lost 0.3% while the Stoxx 600 rose 0.1%.

Currencies: The euro rose 0.4 % and the pound gained 0.7%.

Bonds: saw buying across the curve.  The 2-year strengthened 4 bp to close at 1.576%. The U.S. 10-year closed 2.368 % in about 5bp. The 30-year closed at 2.881 % in about 4 bp on the day. The European 10-year benchmark closes were, gilts closed at 1.33%, bunds at 0.36% and OAT’s 0.604 %.

The US bond curve closes were as follows 2/10 at 79.1 bp, 2/30 at 130.5bp and 10/30 at 51.10. The curve has the distinct feel of a bull rally curve, but this shape could change very quickly as opinion changes or the unexpected appointment of a new Fed Chair is made.

Commodities: Gold rose 0.14% and WTI rose 0.5%. Chinese factories are said to be struggling with soaring gas costs. China is reported to be upset by the imposition of anti-dumping duties on its aluminium foil. Such tariffs range from a duty of 97% to 162%.

 

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