ART OF THE DEAL.

Equity markets retreated a little today as concern over a looming trade war once again gathered some momentum. Trump has expressed doubts about any success in rebalancing U.S.-China trade. The equity market reacted accordingly and was slightly weaker on the day.

Also playing on the mind of equity investors was good news about economic growth, leading to concerns of a Fed hike.  Labour rolls are at the lowest since 1973 and mid -Atlantic manufacturers are seeking higher prices. These indicators point to a rate hike in June.

The current Administration has a lot on its plate as it navigates trade with the Chinese delegation. Navarro has been pushed to the sidelines whilst Mnuchin and Ross handle the negotiation.

Of concern to many investors is EPS growth and this is expected to fall over the next couple of years. Investors fret that the 26.1% earnings growth in the first quarter is the high and that earnings growth will quickly fall to 9.4% in 2019.

Capex in the first quarter rose to 21%,  failing to keep pace with earnings growth. The tech sector accounted for 44% of capex. Energy was the other major sector to increase capex.

On the day, 10-year treasuries rose to a seven-year high. The bond market appears to be trying to determine a bottom as it is now in very oversold territory. The treasury issued 10-year inflation linked bonds today, $11 bio, and the result was rather soggy.

The ratio of bids to offer was 2.42 which was the lowest reading since September. To date, however, the larger asset managers have not shown any sign of bailing from their large bullish bets on longer dated securities.

Italian bonds are weakening as it appears the two anti-establishment parties move closer to forming government. The markets are nervous because of a draft coalition document showing plans to ask the ECB to forgive 250 bio euros in debt and create procedures to allow countries to exit the euro. Italian ten-years are trading around 2.14%.

The U.S. dollar has been the major beneficiary of rising U.S. interest rates and bond yields.

Recap. 

Equities: The S&P 500 fell 0.01%. The Dow closed down 0.22%. The Stoxx rose 0.7%.

Currencies: The Bloomberg Dollar Index rose about 0.2%. The euro fell 0.1% and the yen fell 0.3%.

Bonds: The ten-year closed around at 3.115%. The 2-year closed at 2.573% and the 30-year closed at 3.25%. The ten-year bund closed at 0.638% and the UK gilt closed at 1.559% while the OAT closed at 0.87%.

The U.S. curve closed the day with the following closes 2/10 at 54.2 bp, 2/30 at 67.7 bp and the 10/30 closed at 13.3 bp. The U.S. 5-year closed at 2.939%.

Commodities: WTI fell 0.2% and Gold dipped 0.1%

Bitcoin is trading around $8,181.

Aussie Market Today.

On balance, the equity market should show some weakness on the day as books are squared for the coming weekend.

Bonds probably should be a little weaker but expect some squaring and this could help the market rally a little.