Just when the equity market bears thought it was time to come out and play, the bulls arrived in the nick of time. Equity markets started the day badly and as the morning wore on the broad indices were heading towards another 1% loss.

However, the mere mention that perhaps China may not impose tariffs if the Trump Administration don’t apply tariffs, caused investors to consider the risk on trades.  And the bears were left to languish on the sidelines.

It’s funny because it’s almost as if the tables have turned.  The once short-term trading instrument the bond now appears to have been relegated to the term trade and equities are now the short-term play. That factor will change over time.

So, what caused the changes? Simply put, China came up with a neat set of goods to which they would impose tariffs and those tariffs were specifically targeting those marginal areas that supported Trump. Soft commodities, car manufacturers and some aircraft components were the targets.

It now appears both sides of the tariff spat are looking to engage in some healthy dialogue.  For equity investors, they can now breathe a sigh of relief because, for the moment, the economy and global economy have not been too badly hurt. Perhaps a scratch, but we will see.

We do know that tariffs did impact in the ISM numbers and the extent to which it did was somewhat unexpected. That’s probably why the Fed fired a warning shot, suggesting they would look at tariffs and inflation and be cautious when tightening.

On the day, the market circled around and looks likely to continue to rally. The caveat, of course, is what next with tariffs and should unexpected bad news be announced we will go through another bout of selling.

With no economic news until Friday, markets look set to be skittish. Friday’s number is the jobs report. There is an expectation that payrolls increased by about 195,000 and the ADP National Employment Report would support that number.

However, March does have a tendency for one reason or another to disappoint and any disappointment should cause bonds to rally. The U.S. Services sector activity slowed in March and the reason was a drop in new orders.

Amongst all of this noise, the European bond markets have performed. Italy in particular has outperformed, suggesting a decorrelation of peripherals from risky assets. The Italian 10-year is now at 1.74%. Inflation in the EU remains subdued and still well below the ECB’s target.

On other matters, the ECB wrote down the value of its bonds by 8.17 bio euros. Mario Draghi continues to press the claim that the purpose of QE was to bring inflation back rather than make profits. There is mounting pressure on the ECB as it continues to write down the value of its bond holdings.


Equities: The S&P 500 rose 1.16%. The Dow rose 0.96%. The Vix closed at 20.06. The Stoxx fell 0.5%.  However, that fall was before the U.S market had time to adjust to the news of Trump softening his tariff tone towards China.

Currencies: The Bloomberg Dollar Index was down 0.1%.

Bonds: The ten-year closed around at 2.808%. The 2-year closed at 2.30% and the 30-year closed at 3.04%. The ten-year bund closed at 0.5090 and the UK gilt closed at 1.37% while the OAT closed at 0.72%. The U.S. curve closed 2/10 at 50.9 bp, 2/30 at 74.2 bp and the 10/30, closed at 23.1 bp. The U.S. 5-year closed at 2.626%.

Commodities: WTI rose 0.05% on. Copper fell 1.27%.

Bitcoin is trading around $6,851.

Aussie Market Today.

Today could be seen as a risk on day. Equities should rally if there are no hiccups. Bonds look set to continue their weakness.

All bets are off if the risk of tariffs increases. The Aussie dollar looks set to continue trading in an environment with increased volatility.