An Uneasy Truce

An Uneasy Truce

Ahead of the Memorial Day long weekend the day, the U.S. markets were quiet. The bond market ticked over around 2.25% and the equity market barely moved. It would appear as though most people had headed to the Hamptons.

The Dow closed barely down, down 0.01%, the S&P was up 0.03%, and the Nasdaq was up 0.08%. A quiet day indeed. The Bloomberg Dollar Spot Index fell 0.1% the pound was off 1.2% and the big winner was the yen which was up 0.6%.

Commodities were mixed in what looked a little like profit taking. Copper fell from its 3-week high, Gold rose 0.8% and WTI closed higher to settle at $49.8 a barrel, up 1.8%. Nickel remains sluggish.

Bonds remained subdued and look to remain that way possibly until the Fed hikes rates. The 10-year treasury closed at 2.25% the curve flattened a point. The closes were 2/10 at 94.80, the 10/30 closed at 66.4 and the 2/30 closed at 161.4.

At present, there is an uneasy truce between bonds and equities in the U.S. markets. A lot has been written about improving corporate balance sheets but those improved earnings have not come as a result of sales or capex competitiveness in the domestic market, much of the improvement in earnings has been in the major multinationals and in overseas sales. That is why Trump made such a big deal about sales of weapons to the Saudis and why he was disappointed in Europe because those signatures were not offered.

Simply out and is this why Trumps isolationist policies are so important many major U.S. corporations have profited as a result of improving economic conditions globally. Should that change then the U.S. could well descend into recession. Much of the improvement in the Dow this year for instance has been in the technology sector with just a handful of companies returning 20% of the total return for the Dow.

Meanwhile Trump’s Budget was designed to impress his constituency and not designed to pass, that way he can blame others. This is a cynical administration if my assertion is correct. Trump also now has the problem of the distraction of the Russian probe and with his son in-law under a cloud of suspicion, the Whitehouse will be distracted for some time. How this translates into market forces it is hard to guess but equities are expectational markets and if world growth slows or it becomes obvious those tax promises won’t occur then equities will not be happy.

Its Memorial Day in the U.S. Monday and the U.S. market will be closed.

The Aussie Market Today

Equities will be quiet and will be more a function of commodity prices and interest in demand from China. I expect the Aussie equity market to be quiet and drift weaker on the day. The U.S. is closed and there will be no real market news till Wednesday so the expectation for equity traders will be to be about square.

Bonds will be quiet as the U.S. did not provide any direction. Expect bonds to drift on the day. I expect bonds to be better on the day.