Markets were heading for a (now) rare day where bonds equities and commodities were all able to rally. Bonds were drifting lower in yield on the Jobs Report, equities were slightly ahead and oil was up on the new sanctions to be imposed by the USA.
All the work was undone somewhat by a couple of comments and the Jobs Report on the day was largely forgotten following comments from John Williams the San Francisco Fed President who suggested that he was comfortable or rather that he thought that it would be a reasonable guess to see three hikes this year by the Fed. The comment was reinforced with a similar comment from the Chicago Fed.
The Jobs report of 227k employees was a little better than expected however there was no wages growth which suggests that there are further gains to be made in employment. The lack of wages growth is worrying as it suggests that employment is being made in sectors where productivity gains are reasonably low. The US economy still has a lot of work to do to achieve wages growth and productivity rises.
In essence the US worker is still falling behind, but worryingly the US worker is retiring at a fast pace as well. This number is expected to rise. Ten years ago workers turning 65 were about 6700 a day to currently 9800 and by 2026 this number is expected to rise to 11,700 a day. This will place significant pressure on tax revenues and Medicare. Medicare is expected to blow out over the next few years. The current economic mantra is to grow the US economy to 4%, with low productivity, low personal spending, higher Medicare costs, means that Tax cuts are unlikely to resolve the problem nor stimulate growth to 4%.
Trumps threw some gas on the fire by suggesting that he would repeal Dodd Frank and that the Europeans should leave the Euro. Bank stocks surged, and bonds retreated a little. At heart is do the Bank’s really want to go back to proprietary trading or do they just wish to do client trading? A lot will depend on where the US Banks see their competitive advantage.
Naturally of course the immigration debate continued through the weekend and this debate is starting to cause some polarisation of the corporates. Cargill’s has suggested that Trumps policies are not in the country’s best interests and this coming from the CEO of the very large private conglomerate.
Markets are still rallying on promises. The big infrastructure spend is yet to be announced and what we don’t know is just what the Republican Senate, Congress and base feel about rapidly increasing debt. Infrastructure will cause wider deficits and will require funding that perhaps the private sector may feel uneasy about funding. Budget deficits are already at record levels so any increase is likely to run counter to conservative Republican thinking.
Aussie Market Today.
The equity market should be stronger today and bonds will be a little weaker. This follows the current trend in the US. Commodities should remain bid following the rises in trading Friday. With China back we should see continued demand for commodities.