All In The Mind.

Will they, won’t they, that seems to be the question most investors are asking in response to the latest trade meeting between the U.S. and China.  The rhetoric appears to be confused, Trump’ s latest tweets threw up snippets of frustration but also control in the negotiation stakes.  Trump appears to be suggesting that China is desperate for a deal, but he is not. Confused? I think most investors are, but that’s the lot we have with Trump. The U.S. has accused China of being more protectionist however that’s probably the next piece in the puzzle. The Chinese news agency Xinhua reported that Liu said Beijing was willing to reach an agreement to prevent any further escalation of the trade war.

The focus will shift to earnings next week and investors will be looking for earnings to be better than down 3.1%. Delta fell 1.5% after the carrier forecasted a disappointing third quarter. Cyclicals including energy, financials, industrials, and materials were the best performers on the day. Transportation rose 1.3% on the expectation that goods may start moving if a trade deal is reached.

Crude rose after OPEC suggested that its members and allies would do whatever it takes to prevent another oil slump. This suggests that OPEC and Russia may be looking to shutting down output. This should be a real bonus for the wildcatters in the U.S. as higher oil prices will drive profitability.

On the day the pound surged amid talks that a Brexit deal could be reached. With little on the table, this seems more like blind optimism.

In response, the stock market has surged ahead.

Bonds reacted in a predictable fashion. Treasuries were weaker and risk-off sentiment prevailed. The U.S. labour market provided the bears with some hope and has diminished the expectations of a rate cut later this month.

Yet another milestone has been breached recently with negative-yielding bonds now in excess of $17 tr. Italian bonds helped the pile grow but so too have some corporate bond issuers. Recently Seimens AG issued the most negative yield ever with some investors suggesting they were disappointed to miss out.

Market Recap.

Equities: The S&P 500 rose 0.64% The Dow rose 0.57%. The Vix closed at 17.57. The Stoxx was up 0.65%.

Currencies: The Euro was up 0.3%, and the Pound was up 2%. The Yen fell by 0.4%.

Bonds: (as at 4.30 pm). The ten-year is trading at 1.67%. The 2-year is trading at 1.546% and the 30-year is at 2.16%. The U.S. curve closed on the day with the following closes 2/10 at 12.2 bp, 2/30 at 61.6 bp and the 10/30 closed at 49 bp. The U.S. 5-year closed at 1.489%. The 2/5 spread is now -5.7 bp. The ten-year bund closed at -0.477% and the British gilt closed at 0.575%. The 10-year yen gilt is trading -0.205%. The 10-year OAT (France) closed at -0.187 and the Italian 10-year bond (BTP) is now trading at 1.06% and the 30-year at 2.07%.

Commodities: WTI rose 2.1% Gold fell 0.8%.

Bitcoin is trading around $8,553.

Aussie Market Today.

The stock rally looks likely to continue.  Trade talks will dominate the scene.

Bonds should be weaker after bond markets were weaker overnight. Expect bonds to be weaker by around 8 bp or so.

Credit should be steady on the day.  A stronger equity market should help spreads.
Geopolitical risks remain high and still need to be monitored. Watch developments out of Hong Kong as the protests have a real chance of upsetting sentiment in the region. Watch for a tweet on trade or comment on trade out of China, either commentary will have the ability to move markets.