The Italians surely are a lovable group because,  just when you thought it was time for the bears to play, they caused a ruckus that saw bonds rally significantly everywhere but Italy. Today, we saw the bears come out to play everywhere except Italy, where the bonds rallied after a successful 5 and 10-year bond auction.

So, is it safe to play? Who knows only time will tell. Bill Gross may have a different spin on things after losing about 3% on his bund/btp position.  And George Soros wailed about the end of the world –  that’s trading world –  as we know it. George may have a few bets on and talking his book methinks.  But the world is now in a strange place.

In Europe, the Italian 10-year bond rallied some 32 bp after the bond auction and some political action to form a government was made. Carlo Cottarelli (Italy’s Prime Minister designate) said that possibilities had emerged to form a new government.

The euro strengthened as German data for jobs topped expectations and some strong readings for the CPI across Europe were made. However, we will have to see if Goldilocks returns because the weather is still rather stormy.

U.S. first-quarter growth was weaker than anticipated with consumer spending rising at the slowest rate for some 5-years. This is disappointing given the massive tax cut that the Trump Administration provided earlier in the year.

Gross domestic product increased at 2.2% with inventory investment falling. The economy grew at 2.9% in the fourth quarter. Growth in the first quarter will get a boost from government spending. Gross domestic output (the average of GDP and GDI) rose at 2.5%.

For the bond bears, however, today was a bit of payback. The rally stopped, and the bears could sell, and sell they did. The U.S. market retracement was in line with the movement in European bonds.

Italian contagion is not finished yet. The Italian bond auction saw Italy pay the most for four years for its debt. Italy sold 5.57bio euros. The bid to cover ratio was 1.39 and the 10-year was issued at 3%. The previous auction saw bonds issued at 1.7%.

The storm clouds remain, however. China was blindsided by the Trump Administration’s imposition of tariffs and has vowed to protect China’s interests. Beijing is holding the Administration accountable and wants the U.S. to stay with earlier agreed agreement.  A trade war appears to be looming and that won’t be good for equities and should see some bond buying as a result.

The Volker Rule is being wound back and this should facilitate active trading. The lack of trading activity has been highlighted several times recently and most recently the sell off in Italian bonds.

On the geopolitical front, differences remain between various members of OPEC. The talks between the U.S. and North Korea appear to be on.  However, strong differences of opinions remain. Nuclear armaments remain a point of contention.


Equities: The S&P 500 rose 1.3% The Dow rose 1.26% and the Stoxx rose 0.3%

Currencies: The Bloomberg Dollar Index fell 0.6% while the euro rose 1% and the yen fell 0.1%

Bonds: The ten-year closed around at 2.857% . The 2-year closed at 2.415% and the 30-year closed at 3.025%.

The ten-year bund closed at 0.363% and the UK gilt closed at 1.25% while the OAT closed at 0.696%. The U.S. curve closed the day with the following closes 2/10 at 44 bp, 2/30 at 61.1 bp and the 10/30 closed at 16.9 bp. The U.S. 5-year closed at 2.68%.

Commodities: WTI rose 2.5% and Gold fell rose 0.3%

Bitcoin is trading around $7,343.

Aussie Market Today.

Risk on day today unless we receive some negative political commentary. We may see a rush of selling later in the day for bonds if the European equity market opens strongly.