Markets were the excitement machine today. The Brexit no deal vote was a cause for celebration of sorts for Theresa May, and markets alike. You see, the UK won’t leave the EU without a deal and the deal that May tried to put together in Strasbourg appears to be a dead duck. No deal, no tearing the UK out of the EU. May will, of course, ask for an extension, but the unhappy marriage continues and no divorce just yet.
For the rest of us, this was welcome news of sorts. The U.S. stock market rallied. And the rally is all the more remarkable given the current level of uncertainty. Trade negotiations between the U.S. and China could still stall. Brexit and disappointing numbers in Japan and Australia all point to weaker stocks, but stocks are not weak. Stocks are happy that the Fed is not about to tighten and may not, as the last set of CPI numbers were supportive of the Fed’s position of providing support for risk assets and a patient approach to monetary policy.
U.S. stocks enjoyed a solid rally today with the market being led by gains in healthcare. Boeing continued its slump and is now down 13% since the crash of its 737 Max jet in Ethiopia. The slump appears to be steadying. The grounding, however, does have a silver lining as it allows Boeing to address the problems in the plane and not face another potential disaster whilst fixing the problem.
The catalyst for weaker treasuries today was the 30-year auction. It seems 10-years good, 30-years bad. The 30-year auction saw the successful bids at 3.014% which was higher than expected and higher than the market at the time. The bid to cover was 2.25 below the average of 2.31. The story of the day was the Commerce Department release for core capital goods (business equipment) up 0.8% in January and was the biggest gain since July 2018.
Oil sparked some interest today. It appears a large producer was hedging its production against a drop in prices by buying puts. The strike was set at $60 with an equivalent total of some 16 million barrels executed on the ICE Futures Exchange in June, August, and September expiry dates. The volume of puts was the highest since November. The Brazilian oil producer Petrobras was thought to be the put buyer.
In yet another play, Trump after saying he would not want Einstein as his pilot and thought planes were too complex, requested that the Boeing 737 Max be grounded despite the FAA saying it was safe. The black box in Ethiopia has been found and several countries including Germany have declined to review the contents.
Corporate bonds have enjoyed a good start to the year, in fact, the best start since 2012 because of a better equity market and central banks holding firm on rate increases or cutting rates. The strong performance has allowed European issuers to issue the largest amount of debt in years with ease.
The MSCI World Index has seen the best start since 2012, and the S&P 500 has seen its best start since 1991. The tailwind for investors remains positive with default rates projected to remain subdued according to Moody’s. Moody’s expects speculative-grade defaults to tick up from 2.3% to 3%. Low-interest rates are the reason. As long as there is sluggish growth with no inflation, the rally can continue.
Equities: The S&P 500 rose 0.7% and the Dow rose 0.58%. The Vix closed at 13.51 while the Stoxx rose 0.5%.
Currencies: The Bloomberg Dollar index fell 0.3% while the euro rose 0.4%. The pound leapt 1.4% and the yen gained 0.2%.
Bonds: (as at 4.30pm). The ten-year is trading at 2.62% while the 2-year is trading at 2.469% and the 30-year is at 3.017%. The U.S. curve closed on the day with the following closes: 2/10 at 15.2bp, 2/30 at 54.7bp and the 10/30 closed at 39.3bp. The U.S. 5-year closed at 2.432%. The 2/5 spread is now -3.9bp. The ten-year bund closed at 0.065% and the British gilt closed at 1.197%. The 10-year yen gilt is trading -0.043%.
Commodities: WTI rose 2.7% and gold climbed 0.7%.
Bitcoin is trading around $3,846.
Aussie Market Today.
Equities should stage a nice rally today. The rally is intact for a little while yet.
Bonds are likely to ease a little. Expect some push back on the day as we saw bonds elsewhere just weaken a tad. For the moment, the direction is heavily data dependent and this trend is likely to continue. A pullback to 2% would not be a disaster.