The New Orthodoxy Is The Old Orthodoxy.
The only thing that changes in time is time itself and that’s the way that markets feel at present. With the Trump Administration stumbling and bumbling along markets have settled into the same old routine, a little up a little down with relatively modest trading volumes.
What is becoming rapidly apparent and at some point markets will react is that many of Trump’s ambitious plans are becoming unattainable. One almost could think that the adventure with Syria is a way to distract Trump’s detractors and regain some popularity. The Administration has ascended in to a normal administration something that any Presidential candidate would have achieved. Trump’s ambitious tax plan which certainly would assist the large corporates and the wealthy top 1% appears to be on shaky ground. Trump’s own Republicans are finding the plan difficult to accept and late last week Trump tried to reach out to the Democrats via Ryan only to be solidly rebuffed. After both sides have indulged in what I would describe as a passionate partisan approach, it’s hard to see how the Democrats would accept anything given Trumps sledging and attacks on the Democrats. Ryan is looming rapidly as Trump’s fall guy and his ambitious plans of eventually running for Presidency appear to be at risk.
So what do we know? The bond markets have been suggesting for some time their betting is for a slowing economy and the numbers appear to be indicating that the economy after initially surging has retreated to what appears to be the economy we have seen for the past few years. That is growth about 1.5-2.0%, inflation about the same and unemployment about 4.5-5%. Nothing is changing and the yield curve has started to flatten and that trend has to be monitored.
Geopolitical risks are at this stage playing their hand. Markets hardly reacted to the missile launch but seem to be absorbed in the French election which at this stage appears to be a four way contest. Draghi’s comments are also important as late last week he suggested that the ECB was not about to finish QE soon.
Today we saw a rather anemic gain for stocks. Stocks barely moved the needle and finished up 0.01%. Treasuries were slightly better on the day closing around 2.37%. The curve flattened today with the 2/30 closing at 171.20, the 2/10 at 108.80 and the 10/30 closed the day around 62.20. The spread between the 10 year OATS versus the bund has widened to about 72bp.
The Dollar Index was down about 0.1% and oil continued its bullish run, posting its longest run of gains this year. Oil has advanced 3.2% over the last five days, and much of this gain is due to geopolitical uncertainty. Oil closed at $53.08 a barrel. Gold remains unchanged. Yellen was speaking today at the University of Michigan where she will take questions, however the speech was more an adjudicated question and answer style and it appears as though nothing controversial has come from the speech judging by the current market reactions. Bloomberg were playing her live. Most pundits are looking at the labour reports and jobs growth.
Aussie Market Today.
The US treasuries were relatively quiet and so too the stock market. I expect both markets to drift over the course of the day with the stock market likely to drift weaker as uncertainty builds. BHP could be the catalyst for a weaker stock market as pressure mounts on BHP to as an activist fund is proposing BHP divest its oil business. Iron ore was down and this could weigh on the Aussie dollar. The general trend is for bonds to rally and I expect this to carry over into the Aussie market although one should expect profit taking over the next day or so as traders look to clear inventory ahead of the Easter Holiday.