HOLIDAY SEASON FOR TRUMP Happy days for the markets

Equity and bond markets rally

Just when markets were starting to get interesting Trump has taken a 17-day vacation at his golf course in New Jersey. He is on a working holiday and I am not sure what that or he means by the statement. Meanwhile under Kelly the tweets have dried up and equity markets have continued their rally in the U.S.    Equity markets in the U.S. continued to rally today. Some of the rally can be attributed to a weak dollar. This enables corporates with diversified income and business streams to prosper from currency gains.

Oil fell and European and U.S. economic data suggests growth rates are increasing. The U.S. trade gap in June narrowed to 5.9% mainly due to U.S. exports becoming cheaper, as a result of a weaker dollar. Exports rose 1.2% while imports fell 0.2%.

Oil prices fell, as the oil market focused on comments from OPEC and non-Opec officials. Oil fell 0.5% to close at $49.31 a barrel. Gold fell 0.1% and copper rallied 0.8% to close the highest level in over two years.

Bonds rallied 1 bp with the U.S. 10 year closing at 2.25 in 1 bp. The U.S. curve closed slightly flatter with the 2/10 closing at 45.6 bp, the 10/30 closing at 57.9 and the 2/30 closing at 147.9bp. The European bonds were slightly stronger with the UK 10 -year closing 1.13%, the French 10-year at 0.73% and the German bund at 0.45%.

Bonds are likely to rally further if St Louis Fed’s Bullard is to be listened to. Bullard was speaking earlier today and alluded to inflation remaining subdued even if the job market continues to improve. The forecast is for inflation to rise to 1.8% even if unemployment falls to 3%. Bullard remains concerned about persistent low inflation and fears that low inflation may not be transitory but persistent. The probability of a rate hike by December looks unlikely as the probability of a hike in December is 35% and for a hike in March 2018 is 53%.

Aussie Market Today

Equities should be better on the day. The banking sector could cause a lag to the ASX as investors weigh up the challenges the banks face over money laundering and the position that the CBA currently finds itself. Otherwise bonds should be slightly better on the day.