Quiet today?

Hardly. Equity was whipsawed on the day. The rise and fall of technology and finance stocks were there for all to see as the market moved some 200 points. After starting weak, the equity market recovered after it was revealed that Mnuchin was reaching out to Chinese officials in an attempt to get the Chinese back to the table to discuss trade. What set the market down the path of weakness were comments from 3M’s CFO who complained about rising raw material costs. Semi-conductors were also weak after a Goldman report downgraded several chip makers. Semi-conductors are seen as the canary in the technology sector.

Central banks will be front and centre. Policy meetings for the ECB, BoE, Turkish and Russian central banks are due to meet later this week. The Bank of Israel is preparing the market for a rate hike. In some ways, there may be more froth and bubble to come.

The 10-year auction went well with retail (end users) swamping traders to the extent that 64% went to retail. The result was good because just before the auction, Treasury upped the size by $1 bio. Then the PPI was released and it was far weaker than expected. YoY the PPI is at 2.8% as a headline and 2.3% core, that’s down from 3.3% and 2.7%. The result led many buyers to take the point of view the rate hikes will be cautious and that the Fed will take a gradual path. Retail felt it was an opportune time to put some duration on and did so, selling the futures to hedge and confounding hedge funds as the record shorts continue to grow. Meanwhile, the 2-year note continues to break decade highs and today was the fourth consecutive day.

Ray Dalio threw his considerable intellectual weight into the ring today by joining a long list of dollar naysayers. Dalio is concerned about mounting deficits and rising interest rates and muses that in the near future there could be a time when people don’t want the dollar.

On the wages front, the disparity in wages is once again front and centre. The U.S. median household income rose to the highest on record but the gap between white and non-white households widened. Median household income is about $61,400 and increased by 1.8% in 2017. White household income grew 2.6% to $68,145 and 3.7% for Hispanics to $50,486 whilst African American households fell 0.2% to $40,258. During the period 2015 -2016, income growth was stronger for low and middle income households.

Meanwhile, President Trump has fallen foul with the government watchdog. Apparently whilst out on the hustings, he potentially violated the Hatch Act by campaigning for Republicans at official events. Not that he cares. Trump also ordered sanctions on foreign election meddling. Apparently, some 10,000 tweets were released during the election that pitched both for and against the affordable care act, leading to partisan actions.

Market Recap.

Equities: The S&P was unchanged. The Dow rose 0.1%. The Stoxx 600 rose 0.5%. The Vix closed at 14.16.

Currencies: The Bloomberg Dollar Index fell 0.5% and the yen rose 0.3%

Bonds: The ten-year closed around at 2.964%. The 2-year closed at 2.75% and the 30-year closed at 3.107 %. The ten-year bund closed at 0.414% and the OAT closed at 0.723%. The U.S. curve closed on the day with the following closes 2/10 at 21.1 bp, 2/30 at 35.2 bp and the 10/30 closed at 14.0 bp. The U.S. 5-year closed at 2.86%.

Commodities: WTI rose 1.4%. Gold was up 0.6%.

Bitcoin is trading at around $6317.

Aussie Market Today.

Expect equities to continue their rally on the back of the news that the U.S. wants to talk to China.
Bonds are likely to rally a little on the day. Demand appears to be returning and in the U.S. we saw strong auction results. Europe also rallied. The Asian markets will still be a little hazy but should provide the direction.

The Aussie dollar improved overnight and this appears to be on the back of trade talks.