Eyes Only For The Central Banks

Markets were quiet today and appear to be preparing for Wednesday’s much anticipated Fed rate hike. Volumes were low and the market fell away a little but the fall could have been bigger without the Intel takeover of a much smaller Israeli company Mobileye NV a leader in self-driving technology.

Bonds were weaker tracking back to 2.62%, French OATS rallied as it appears that Le Pen has slipped and a win appears unlikely in the French election. Draghi is drawing attention because of more hawkish comments. Meanwhile the much anticipated meeting between Trump and Merkel has been delayed untilFriday because of a major winter storm bearing down on the North East. About 18” of snow is expected in NYC tomorrow.

US 10 year treasuries weakened to 2.62% a possible signal that the market has entered a bearish phase. Bunds rallied slightly to 0.47% and OATS rallied to 1.09%. The U.S. market has anticipated the rate hike and the probability of a rise is now about 95%.

Trump meets with major car makers tomorrow, but that meeting could be delayed because of stormstomorrow. The big news though is health care. The Trump plan looks like 24 million may not have health coverage in 10 years with 14 million currently who won’t have coverage. Even more intriguing is that some 54 million don’t want health care which is interesting given a stitch costs $600 without coverage, a course of Amoxil cost $400, a broken arm would set you back about $15,000 or 3 days in intensive care sets you back in excess of $80,000.  The message is don’t get sick. The implications for the budget could be substantial so developments need to be watched. The deficit is expected to fall about $337 bio over the ten years.

Trump has a fight on his hand and needs funding for some of his pet projects such as The Wall. The debt ceiling will be hit shortly and Congress wants to debate raising the debt ceiling and how Trump’s projects will be budgeted for and paid for.

With no policies as yet but a lot of talk, Trump is talking a good game but CEO’s won’t commit without detail on things like Tax Policy changes, the stoush with the WTO and Trump’s policies on Trade.

On another note and a reason to be fearful, General Motors Finance was reported to now have the SINGLE largest exposure to sub-prime loans in the U.S. This development brings to mind when GM owned Delphi the single largest home mortgage lender in the U.S. and the effects of 2008.

Aussie Market Today.

Bonds were weak in the U.S. and look likely to continue to remain weak depending upon how many rate hikes are factored in over the year. This means Aussie bonds will be weaker on the day. Equities may drift weaker over the day as investors weigh up the outlook for commodities, China’s growth stories and the impact a rate hike will have on the Chinese economy and Central Bank which may be forced to intervene in currency markets.