Bye bye American dream.

The American dream has all but evaporated for the average American to buy a home, or at least that’s what a RealClear Opinion Research survey found in a national poll. Some 45% believe banks and investment firms have made it harder to achieve the dream and 26% say no difference at all.  Interestingly, the survey also showed that 58% say free markets should be regulated and 15% say stronger regulation is required.

Meanwhile, another of Trump’s promises remain broken. That’s the promise to reduce the trade deficit. The U.S. trade deficit for December is at a 10-year high of $621 bio.  The largest goods deficit in history was also recorded, growing 10% to $891.25 bio.

Further increases in the deficit are expected as global growth slows and growth in the U.S. continues above trend. Trump’s trade policy is partly to blame. The tariffs that he threatened to impose saw a rush of imports as importers sought to beat the tariffs. Exports in agricultural goods fell as a result of the tariff policy.

Equities took a tumble on the day as the data outlook suggests a slowing economy. The widening trade deficit and private companies adding fewer jobs are causing concern for growth.

On the day, health-care and energy stocks led the way down and GE shares plummeted again as the reality is management has a lot of work to do to get GE profitable. All those years where it played financial giant using its AAA rating at the time and not investing in capex in its engineering businesses have come to haunt the business.  GE is now rated BBB+, a far cry from its former glories.

Markets are becoming comfortably numb to trade announcements and this too must be a concern for investors. Markets are awaiting news of a trade deal being cut with China and hope this, in turn, will fuel a rally.

However, the killjoy for markets, the bond market, is looking now for large falls in treasuries. Morgan Stanley is now predicting a 10-year at 2.35% by year-end. News is pointing in the wrong direction.

The U.S. Fed Beige book depicted concerns of slowing growth as a result of the government shutdown.

And the big news is that the triple B rated sector is starting to see credit spreads march in. Issuance is supportive of the sector and since January the sector has seen credit spreads tighten some 19 bp.

The Aussie market is also catching a bit of a bid tone for its part. The Australian economy is in a capital recession and analysts are predicting a rate cut as early as April 2 and if not then May, the night of the budget. Rather odd timing as Australia is expecting the LNP to announce an election when Parliament returns May 19.

The RBA will have some explaining to do cutting rates just prior to an election and being seen to not be politically biased. Aussie bonds rallied, and the currency fell as a result of the data. Aussie bonds rallied some 8bp. The economy is in somewhat a mess and any trade deal between China and the U.S. is expected to have a detrimental impact on the economy.

 

Market Recap.

Equities: The S&P 500 fell 0.65%. The Dow fell 0.52%. The Vix closed at 15.74 while the Stoxx was slightly down.

Currencies: The Bloomberg Dollar index rose about 0.2%.

Bonds: (as at 4.30pm). The ten-year is trading at 2.693%. The 2-year is trading at 2.516% and the 30-year is at 3.07%. The U.S. curve closed on the day with the following closes 2/10 at 17.60bp, 2/30 at 55.3bp and the 10/30 closed at 37.7bp. The U.S. 5-year closed at 2.499%. The 2/5 spread is now -1.9bp. The ten-year bund closed at 0.128% and the British gilt closed at 1.226%. The 10-year yen gilt is trading -0.003%.

Commodities: WTI fell by 0.7%. Copper fell 0.4%.  Gold slipped 0.1%.

Bitcoin is trading around $3,838.

Aussie Market Today.

Equities are likely to be mixed. Sluggish offshore markets are not assisting direction, and this will make equities a little choppy. There will be a hunt for yield as investors eye lower rates.

Bonds look likely to continue the rally. The news of a capital recession has many thinking an interest rate easing and this means rates and bond yields are likely to rally.

Geopolitical risks remain high and still need to be monitored. Not only do we now have to watch relations on the Korean Peninsula, but we also have a serious situation developing between India and Pakistan.