WHAT’S OLD IS NEW AGAIN.

IRAN NUCLEAR

That saying appears to hold true with the Trump Administration’s way of governing the U.S. The textbook play was to abandon the Iran deal and thus create uncertainty. Geopolitical risks have now risen sharply, and this makes the outlook difficult for investment decisions leading to increasing volatility across asset classes.

The breaking of the Iran Deal no doubt means that the Saudis and Israel have been pacified.  But at what cost? The increase in sanctions probably won’t have the desired effects. Europe has now been plunged into uncertainty and a number of large pending business transactions are uncertain.

Both the large European oil companies, Total and ENI, are affected. Sanctions and embargoes no doubt will make Iran more resolute and will lead to Iran developing its nuclear capacity. Iran has a guidebook in North Korea. Iran no doubt will continue to trade with those countries it already trades with and receive armaments from countries on the U.S. embargo list such as Russia.

Geopolitical turmoil is not easing by this decision it is in fact ratcheting up many times. For both Israel and Saudi Arabia, the environment will become electric.

Markets reacted to the Trump comments with concern. The equity market slumped on the news. With the Sino- U.S. trade talks looming and given Trump’s earlier stance regarding trade, markets could be in for a period of sustained increased volatility.

Following Trump’s announcement, the treasury market changed its bearish stance and became more benign. Treasuries were heading through 3%.  However, they ended the day around 2.97%.

Whilst on the subject of treasuries, Jamie Dimond suggested that the market needs to adjust its thinking towards the 10-year bond and factor in 4% as the level for a 10-year bond. Meanwhile, Bill Gross sees the ten-year stuck between 2.95% and 3.15% for the year in which he describes the bond environment as a hibernating bear.

Political uncertainty will lead to demand for bonds in the short term.

Argentinian bonds improved significantly on the day after it was announced that Argentina had commenced funding talks with the IMF to help stabilise the peso. Credit default swaps moved from 415 bp to 355bp on the announcement.

Meanwhile, S&P has maintained its negative outlook on Australia’s AAA rating following the Budget announcement Tuesday evening. S&P cited global trade tensions, fiscal outlook and strains in emerging markets as issues for Australia.

The equity market after initially slumping, recovered as the afternoon wore on. The big movers on the day were the energy related stocks. Utilities and telecoms saw the biggest declines. Volumes were up slightly on the day.

Recap. 

Equities: The S&P 500 fell 0.03% The Dow rose 0.01%. The Stoxx gained 0.08%.

Currencies: The Bloomberg Dollar Index was up 0.3%. The euro fell 0.5%, and the pound fell 0.1%.

Bonds: The ten-year closed around at 2.97%. The 2-year closed at 2.51% and the 30-year closed at 3.128%. The ten-year bund closed at 0.56% and the UK gilt closed at 1.44% and the OAT closed at 0.803%.

The U.S. curve closed the day with the following closes: 2/10 at 46.3bp, 2/30 at 61.7 bp and the 10/30, closed at 15.2bp. The U.S. 5-year closed at 2.811%.

Commodities: WTI fell 1.4%.  Gold was unchanged.

Bitcoin is trading around $9,168

Aussie Market Today.

The Aussie market should see equities rally whilst bonds could be a little stronger on the day due to increased geopolitical risks.

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