The Lull Before The???

equity

The equity market in the U.S. took a rest today as volumes remained thin and investors weighed the likelihood of a rate hike by the Fed. Bonds traded weaker on the day as the probability of a rate hike on the 15th March has now risen to 96%. The caveat is the jobs report due Friday with the expectation that 190k people will gain employment. Any significant fall could see the Fed wait but many consider that the probability of the Fed not hiking is unlikely.

On a quiet day one trend that is starting to cause a little concern is the volume in trading in one of the major ETF. The ETF that goes under the input of SPY has seen significant inflows in recent weeks and for traders this is seen as a capitulation trade and causing concern that markets could be due for a slide.

On the day commodities were weaker. Metals slipped, especially copper and aluminum which fell 1.1% on the basis that Chinese demand will slow. The U.S. dollar index was stronger by about 0.3% and crude rose slightly.

The ECB meets Thursday and it is expected that Draghi will continue with the current strategy of targeting inflation at 2% and keep QE going until the end of the year.

Equity markets could perhaps have been a little higher as GM announced the sale of OPEL and Vauxhall to Peugeot in what was seen as a good deal for Peugeot, Deutsche Bank announced that it is doing an equity raising and is looking to raise about $8.4bio.

On the day the U.S. 10 year treasury closed about 2.49%, the 2 year is steady at 1.31% and the 2/30 spread is about 179.50, a slight steepening of the curve. The generic 5 year BBB spread is now about levels not seen since 2007 at around 150 to swap (Merrill Lynch Corporates BBB). Markets are at this stage poised to move but the direction will be skewed by the actions of the Fed and any policies announced by Trump.

On other news, Tyson Foods appears to have an issue with bird flu. Bird flu was detected in some of their chicken products and it appears as though Korea will stop imports from the U.S. The Whale, yes you remember the risk manager for JPM who managed to lose $6 bio through bad hedges is likely to be charged by the Fed and face charges in NYC.  Bruno Iksil (the Whale) has stated that he looks forward to the Trial as it will allow him to clear his name. This could be interesting as the Whale was placed in the position as he was considered a star trader and JPM did not want to lose him when they closed proprietary trading.

 

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