CONFIDENCE IN SPADES.

Today, the markets rallied because it appears as though the trade spat between China and the U.S. has been averted.  So, both countries can get back to their capitalist roots and make money.  All is good with the world.

Well maybe, not quite if you are Steve Bannon who sees Mnuchin as China’s patsy. But apart from Steve all is good. The oilmen partied and cheered as if it were 2014 as oil climbed back to a level not seen since November 2014.

But it’s not as though all the risks have evaporated. This week has a slew of risks. The minutes for both the ECB and the Fed are to be released, we have debt sales in the U.S. and various purchasing managers indices.

Geopolitical risks abound firstly with China and Chinese help in getting Kim to Singapore to meet with Trump.  Also, there is a possible pushback from the Europeans as Trump seeks to raise the ante on the embargoes he wishes to impose on Iran. And there is no sense of a deal in NAFTA. Geopolitical risks have not diminished, its just that markets have chosen to ignore those risks.

The reaction of the bond market over the week will be critical to how other assets perform over the week. U.S. debt will be tested by the supply chain this week. Treasury is slated to sell $99 bio in short and intermediate notes this week,  with $33 bio in 2-year notes, $36 bio in 5-year notes and $30 bio in 7-year notes.

Demand will be determined by whether investors feel that current levels make good investments.  Or, with further supply coming, they may feel better opportunities will occur later in the year. Adding grist to mill was Philadelphia Fed President Patrick Harker who expects at least two more Fed hikes and possibly 3 more hikes this year.

Mitigating some weakness will be concerns over Italy. The U.S. may be seen as a safe haven in the light of political and economic concerns relating to the new Coalition in Italy.

The 5-Star Movement in Italy is causing concerns and as such borrowing costs are now elevated and the equity market has suffered. The spread between Italian BTP’S and Bunds is now 182 bp.

Italian shares fell 2.1%. The 5-year credit default swaps are now trading around 136bp. The 5-Star Movement want to spend money on welfare and roll back pension reforms as well as seek some debt forgiveness.

There was a huge win in the Courts today as the top U.S. court ruled that workers are required to sign away their ability to bring class actions claims against management even in the case of wrongdoing.

Recap. 

Equities: The S&P 500 rose 0.7% The Dow rose 1.2% The Stoxx rose o.3%

Currencies: The Bloomberg Dollar Index fell about 0.1%. The euro rose 0.1% and the yen fell 0.2%.

Bonds: The ten-year closed around at 3.58%. The 2-year closed at 2.57% and the 30-year closed at 3.20%. The ten-year bund closed at 0.52% and the UK gilt closed at 1.472% and the OAT closed at 0.821%.

The U.S. curve closed the day with the following closes 2/10 at 49 bp, 2/30 at 63.2 bp and the 10/30 closed at 14.1 bp. The U.S. 5-year closed at 2.895%.

Commodities: WTI rose 1.78% and Gold dipped fell 0.1%.

Bitcoin is trading around $8,416.

Aussie Market Today.

The equity market should be strong on the day as most bourses recovered overnight with some more so than others.

Bonds should be steady on the day.