Mixed message.

On a day where the expectations were for the rally to continue on the back of solid earnings, something happened. The market stalled.  But the earnings data until now has been supportive and really has not changed.

UPS reported a profit and if that’s a trend that won’t be good news for the U.S. economy, 3M fell 13% after cutting its forecasts and the proposed merger between Commerzbank and Deutsche has stalled. However, big tech continues to rally and really that’s the message and the case for some time. Big tech has saved stocks for some time. And for a brief moment, Microsoft was a trillion-dollar company and rose 3.3%.

The news on the day was good. Durable goods orders came in stronger than expected and that’s good news for the economy and stocks but not so good for bonds which responded in the appropriate manner and sold off a little.  In addition, non-defense capital goods surged 1.3%, the most in eight months. A fall in shipments suggests that business spending has slowed.

What we can now look forward to is the release of the GDP data Friday. And if the data is in line with expectations then the current rally in equities and the current levels will be vindicated. The GDP data appears to have been confirmed at 2.5% on the back of durables.

As a result of the data, the algo traders were active selling treasuries on the CME. Sales were concentrated in the belly to the long end and a little steepening resulted. Leverage is, however, buying the dip from Eurodollars to 2-year treasuries. Real money has been a light buyer of cash 10’s with overseas buyers being the more active purchasers of bonds.

The real market activity was linked to two bond issuers. Tesla bonds (junk at single B) were smashed after the company announced a $700 million first quarter loss. The August 2025 is now trading around 618 bp on a spread basis to treasuries versus comparably rated single B companies at 402 bp and the average high yield bond at 373bp versus treasuries.

Deutsche Bank bonds gapped wider after the announcement of the proposed merger with Commerzbank was ruled out. Deutsche’s Additional Tier 1 and Tier 2 were out about 1.5 points in cash price terms. Its recent 2.625% Feb 2026 senior non-preferred was trading in the low 190’s a week ago and is now trading wider of 200 bp. Commerzbank, by comparison, tightened on the news. Its spreads tightened 5bp.

Whilst talking all things European, the Vice President of the ECB, Luis de Guindos suggested that the ECB would resume printing money if it needed to boost inflation. He also suggested the ECB could also use other tools including asset purchases. The EU is expected to grow at around 1.1-1.2% this year. German bond yields continue to bounce along at slightly negative levels. Sentiment is causing the low yields and the recent German Ifo is driving that sentiment.

The Rant

Investors are taking a spring break at present. The binge in buying risk assets has subsided. High yield bond funds saw $520 mio of withdrawals this week along with U.S. based equity mutual funds that lost $3.64 bio. U.S. exchange-traded equity funds lost $3.68 bio and U.S. domestic equity funds lost $7.5 bio. (According to Lipper Research.) Investment-grade corporate bond funds saw inflows of $5.68 mio.

The politicisation of the Fed is something that investors should not take for granted. Trump is seeding the Fed with picks that are often at odds with the Chair and other FOMC Board members and appear willing to put Trump’s policies ahead of current strategy. Currently, Stephen Moore is before the Senate as a Trump nominee and is the subject of some derisive comments about women and the Mid-West. Moore favours significantly lower cash rates.

Market Recap.

Equities: The S&P 500 fell -0.04%. and the Dow fell 0.51%.  The Vix closed at 13.25 while the Stoxx Europe 600 Index fell 0.2%.

Currencies: The Bloomberg Dollar index rose 0.1%  while the euro fell 0.2% and the yen gained 0.5%.

Bonds: (as at 4.30pm). The ten-year is trading at 2.534% while the 2-year is trading at 2.333% and the 30-year is at 2.944%. The U.S. curve closed on the day with the following closes 2/10 at 19.8 bp, 2/30 at 60.8 bp and the 10/30 closed at 40.8 bp. The U.S. 5-year closed at 2.33% and the 2/5 spread is now -0.4 bp. The ten-year bund closed at 0.009% and the British gilt closed at 1.155%. The 10-year yen gilt is trading -0.03%.

Commodities: WTI fell 1.4% but Brent traded for the first time at $75 since October.  And Gold rose by 0.2%.

Bitcoin is trading around $5,415.

Aussie Market Today.

With the holiday spirit still in full swing and with volumes low, I expect the ASX to be quiet on the day. There may be some positioning ahead of the U.S. GDP number but with the weekend ahead I don’t see many reasons to rally the market too hard. Traders will already have their positions set and there probably has not been enough news to change those views. And in a slightly drifting market, the equity market could be slightly lower.

Bonds will continue on a view towards lower rates. The CPI number has caused a number of analysts to revise their expectation that rates could fall in May ahead of the May Federal election. If traders are of that view, then bonds can continue to rally.

The currency is saying as much with the Aussie around 0.7017c. With the U.S. bond market muted there is every chance that fixed rate bonds could rally some more. What the RBA can look to is the increase in housing activity, in particular, auction results should they choose to hold off until June. Either way, it looks as though bonds will trade lower in yield on the day. Demand for credit continues.