The market is shaping up for what can best be described as “we’ve been here before”. The bond markets rallied on trade concerns whilst the equity market softened as a result of the rhetoric and trade concerns. However, there is a light at the end of the tunnel. Well maybe as it appears the Chinese have caved in on introducing a tariff on crude. Let’s mark that as a win for the Trump Administration.
Japan looks to be on the cusp of growth with the latest set of data showing household spending improving and investment. The outlook on tariffs is not benign and threatens to stymie the green shoots of growth that have appeared.
Whilst in the U.S., a number of Fed officials have been talking the U.S. economy up. The latest to do so was the Chicago Fed’s Evans who see two more rate hikes and that could also have contributed to the recent rise in the dollar. Expectations drive markets. The 30-year tender was held today and once again U.S. bonds are seen as a safe haven asset. The 30-year rallied 5 bp on the day and was one of the better days for the 30-year.
In an interesting move and one designed to support the housing market, the Fed purchased $1.7 bio of mortgage bonds. The Fed sold no mortgage securities guaranteed by Fannie Mae this week.
In a sobering report released by the WTO, global trade is losing its momentum. Its quarterly outlook indicator slipped from 101.8 to 100.3. The number suggests easing in trade growth.
And in a rebound, Tesla shares slumped today, falling some 4.8% and erasing the short-term gains following Musk’s tweet. The energy index fell some 0.9%. The day’s trading was slightly lower than the average with some 5.9 bio shares exchanging hands. The average is about 6.3 bio shares a day.
Equities: The S&P fell 0.14% and the Dow fell 0.29%. while the Stoxx 600 rose 0.21%. Vix closed 11.27.
Currencies: The Bloomberg Dollar Index rose 0.5% and the euro fell 0.7%.
Bonds: The ten-year closed around at 2.929%. The 2-year closed at 2.649% and the 30-year closed at 3.073%. The ten-year bund closed at 0.375% and the UK gilt closed at 1.297% and the OAT closed at 0.713%.
The U.S. curve closed the day with the following closes 2/10 at 27.7 bp, 2/30 at 42.3 bp and the 10/30 closed at 14.4 bp. The U.S. 5-year closed at 2.809%.
Commodities: WTI fell 0.3% and gold fell 0.1%. The Bloomberg Commodity Index fell 0.2%.
Bitcoin is trading around $6587.
Aussie Market Today.
Equity markets should be slightly weaker on the day. Bonds should also rally on the day as concerns over tariffs mount. Continue to monitor the tariff outlook rhetoric. China will continue to have a strong influence on the direction in Asia and, ultimately, Australia.
The Aussie dollar looks to be under pressure. However, the relief valve remains in the form of bond rates.
Geopolitical risks remain high.