With no apparent threats on the horizon, the U.S. markets continue to party as if it’s 1999. Lil’ Kimmie could not ignite a sale or a sell off despite launching yet another missile over Japan. There is a threat of another couple of hurricanes, one of which, Jose, looks a possibility of battering the New Jersey shores and its reach could go as far Boston. Another hurricane is building on the Baja Coast. We have yet another hurricane Norma that looks likely to hit Puerto Rico. Just a few hurricanes a trivial affair in a normal weather pattern year for the U.S.
In other news, it appears that the U.S. may be having second thoughts about withdrawing from the Paris Agreement. For Trump, this could be rather tricky as his news on fake news and the evangelical view that this is all God’s work. To stay with the Agreement is anti-God and could prove to be a difficult for Trump to explain why he wants to be part of the Agreement.
And Trump does it again with yet another one of his tweets. His tweets say it all. Donald retweeted a video where a golf ball that he tees off strikes Hilary Clinton, knocking her down. Trump is somewhat delirious in his mirth. His Press team are quick to announce that Donald’s tweets are what he thinks. And after a weekend of rattling sabres getting stuff off his chest, Rex Tillerson directly contradicts his boss. He suggests that North Korea should be handled peacefully. It’s easier to understand what Kim wants rather than try and second guess the current Trump Administration that appears to have policy made on the run.
Maybe the party needs to stop so the host can settle. Policy is sadly lacking and even the concept of policy appears to be foreign. Mnuchin is to have the tax policy ready by the week of September 25 and the Democrats appear to have some leverage over Trump. However, it remains to be seen if this weekend’s video of the golf ball hitting Clinton sparks some comment from Pelosi. The markets are on oxygen at present and want to see some results eventually.
Retail sales were weak. The number was somewhat expected following Harvey’s impact. The next few retail sales will be watched with caution. U.S. treasuries weakened. This was largely due to stronger equity markets and a change in sentiment over inflation. Whether inflation rises, is yet to be seen. However, recent jobs numbers suggest that inflation should not be too far off if you have a strong belief in the Philips Curve. Otherwise, normalcy prevails. The issue for jobs is that demand is for skilled work and without the necessary skills wages are not under pressure. Therefore, it is only a small portion of the workforce that can benefit. So, if you are a motor body builder there is demand, if you are an economics graduate, the barista’s wages are stagnant.
Equity markets saw the S&P 500 gain 0.2%, the UK’s FTSE 100 fell on interest rate hike fears, and the Stoxx 600 fell 0.3%
Currencies reacted to the UK news and the pound rose 1.3%. the yen slipped 0.6%.
Commodities saw WTI rise 0.1% closing at $49.93 a barrel up almost 5% for the week. Gold slid 0.6%.
Bonds saw the U.S. yield curve flatten as traders believe that the Fed will not tighten before year end. The recent CPI result has the market believing that the Fed will hike in December. Weak data is holding the market back. Industrial production fell 0.9% in August, its first decline since January and retail sales slid 0.2% as a result of Harvey. The 10-year benchmark closed at 2.20%, the 2-year at 1.38%. The other driver this week for bond prices was the heavy issuance week where some $56 billion of bonds was issued. This was almost matched by the issuance of $55 billion of high grade and junk bonds. The UK 10-year closed up 7 bp to finish at 1.30%. Gilts are rising on the expectation of a rate hike.
Aussie Market Today.
The risk of rate rises globally are increasing and for Aussie bonds that makes them less attractive over time. Expect continued selling and a fairly bumpy ride in the near future. Equities look set to rally on positive sentiment.