In preparation for Powell’s comments in Jackson Hole, the markets sold.
For markets, it’s all about Jackson, Jackson Hole that is. In preparation for Powell’s comments at the central bankers’ gabfest in Jackson Hole, the markets did some preparatory work. They sold.
The treasuries were sold a little, particularly the front end of the curve, because the expectation is that Powell will be hawkish with his comments. The dollar was stronger, equities were slightly weaker and commodities fell away.
Once again it’s very difficult to say anything relating to the U.S. if you don’t mention Trump. We can’t. There were two missives from Trump yesterday. One was his gloomy outlook on fixing trade with China.
And frankly that was always going to be tough. Calling South Africa a currency manipulator. I am not sure if he has been to South Africa but the nation is classified as an emerging market country and is rated BB+.
The other relates to the Mueller investigation. Trump is preparing the way he can rid himself of Sessions, appoint a new Attorney General and get rid of Mueller. It seems Mueller is uncovering a can of worms that both some members of the GOP don’t want revealed and Trump’s election campaign.
His former associates are falling like flies and that is what is worrying Trump. Today, it appears as though Cohen wants to talk and David Pecker (he is the one that help keep the stories mothballed) has been granted immunity, suggesting he has a bit to say.
Trump has thrashed and even suggested that the stock market will crash if impeached, after attributing the rise entirely to himself.
That’s a big call as the stock market given much of the gain has come during Obama’s presidency and the Trump return is only 1 % higher than the yearly gain under Obama and that’s after a massive tax cut that is ballooning the deficit. Most analysts are focusing on 2019 and the earnings expectations are slowing.
And whilst we are talking sellers, it appears as though the eurodollar options whale is back. The whale has bet that the rate increase by Powell will go well beyond the levels set in 2018 and appears to be targeting a level of 2.65% by mid-2020. The trade is betting that a level of 4% to 4.25% won’t be breached.
Powell is due to speak at 10 am Friday.
Equities today were soft and that was mostly over concerns relating to trade tariffs. The two bell weather stocks, Boeing and Caterpillar were casualties today with Caterpillar down 2% and Boeing down 0.7%. Then we also have the potential fallout of a President. The labour market numbers were released today and indicated the U.S. economy is still solid. Volume was light on the day.
The ECB is becoming increasingly rattled by protectionism and the prospect of a looming trade war. In the latest minutes, reference was made to these points. In one of the shortest press conferences on record, the meeting did not consider policy alternatives and rate setters agreed to reconfirm the current stance.
Equities: The S&P fell about 0.17% and the Dow fell 0.30% and the Stoxx 600 fell 0.2% while the Vix closed 12.41.
Currencies: The Bloomberg Dollar Index rose 0.7% while the yen fell 0.7% and the euro fell 0.5% and the pound collapsed 0.7%. The rand fell 1.9%.
Bonds: The ten-year closed around at 2.83% and the 2-year closed at 2.62% while the 30-year closed at 2.98%. The ten-year bund closed at 0.34% and the UK gilt closed at 1.27% and the OAT closed at 0.68%.
The U.S. curve flattened on the day and closed with the following closes 2/10 at 20.6 bp, 2/30 at 35.9 bp and the 10/30 closed at 15.1 bp. The U.S. 5-year closed at 2.724%.
Commodities: Crude fell 0.1% and Gold fell 0.7% while the Bloomberg Commodity Index rose o.2%.
Bitcoin is trading at around $6,467.
Aussie Market Today.
The lead for the equity market will come from Asia. Expect some drift and maybe some book squaring on the day.
Ditto for bonds. The direction will come via any commentary. I expect bonds could rally early on the day.
The World Bank printed the first block chain transaction today. The $110 mio was led by the CBA and was priced at 99.901, giving a yield of 2.25% or swaps + 23. The details are 2.2% World Bank maturing 28/8/20.
Investors included CBA, First State Super, NSW Treasury Corporation, Northern Trust, QBE, SAFA, and Treasury Corporation Victoria