Twist and turn.

What an end to the day and what an end to the quarter. A stronger dollar continues to buffet emerging markets. Higher U.S. interest rates and the possibility of a tariff war have taken their toll.

The MSCI Emerging Markets stock index fell 8.5% over the past quarter. Meanwhile, political instability in countries such as Turkey has only exacerbated the problems.

In the U.S., questions continue to be asked about the U.S. economy.  Consumer spending, which accounts for some two-thirds of U.S. economic activity, rose 0.2% last month, according to the Commerce Department, was a disappointing result. The yield curve flattened and is at its flattest for about 10 years. The spread between 2/10 -years is now about 30 bp.

The ECB is mulling through the idea of purchasing longer-dated securities next year despite checking its purchases of securities as QE ends, to keep borrowing costs low. This action is expected to flatten the euro yield curve and place flattening pressure on the U.S yield curve.

The ECB may also choose to smooth its re-investments by deviating from its “capital key” rule. This would allow the option of purchasing corporate debt. The idea is to keep duration as long as possible.


The ECB is expected to roll 180 bio euros next year, of which about 50 bio euro is in German debt. About 15 % of the bonds the ECB holds is expected to be rolled in 2019.

Meanwhile, in the U.S., stocks eked out a gain in a quarter that saw stocks whipsawed by trade tensions. The S&P rose for the third consecutive month as tensions relating to trade appear to have eased. However, this could change in 5 days time as the countdown to the imposition of U.S. tariffs on Chinese goods.


Equities: The S&P rose 0.1%, the Dow rose 0.23% and the Stoxx 600 rose 0.8%.

Currencies: The Bloomberg Dollar Index fell 0.5% while the euro rose 0.9%.

Bonds: The ten-year closed at 2.84%. The 2-year closed at 2.516% and the 30-year closed at 2.967%. The ten-year bund closed at 0.316% and the UK gilt closed at 1.26% and the OAT closed at 0.64%.

The U.S. curve closed the day with the following closes 2/10 at 32bp, 2/30 at 45 bp and the 10/30 closed at 12.8 bp. The U.S. 5-year closed at 2.717%.  The U.S. yield curve flattened on the day.

Commodities: WTI rose 1.2% and gold rose 0.2%. The Saudis are attracting a lot of flack from the U.S. relating to the increase in oil prices.

Bitcoin is trading around $6,365.

Aussie Market Today.

The Aussie market should see equities stage a small relief rally whilst bonds will drift off. It appears as though some of the trade tensions have eased and this will help the narrative for equity and risk on trades.

However, geopolitical risks remain high.