Like the bulls running down the streets of Pamplona, equities fired, spluttered, changed direction and charged ahead. The market is being driven by increased earnings and we can thank Trump’s tax cuts for that. The economy is growing at a steady pace, but probably not enough.

However, for the moment, blue sky beckons and hence the rise in equity prices. The thing the equity market has to fear are policy suggestions that run counter to U.S. growth. Economic growth could be threatened by Trump’s protectionist policies, for instance.

The rise in corporate earnings are supportive of increasing bond yields and that is something that we have hardly seen. The big gainers on the day were Goldmans, Netflix and healthcare companies.

U.S. home building increased more than expected in March, showing a rebound in multi-dwelling and a decline in single dwelling.  This may be more of a tax story as developers seek tax abatement to build properties that can be rented and no taxes to be paid for a period.

However, like the bulls in Pamplona, not everything ends well. There are a few things to be concerned about that are hiding just around the corner. U.S. interest and swap rate curves have started to invert. The forward curve for the 1-month U.S. Overnight Index Swap (a proxy for the Fed policy rate) has now inverted at the two-year mark. The inversion in the front end of the market is generally perceived as a bad omen for risky markets.

The curve has been flattening for the past 4-years.  However, at 44 points, it is not too far away from inverting. The curve has gone flat eight times in the past four decades.  Curve inversion followed on six occasions and the economy went into recession on each of those occasions.

One often hears that things are different this time and that’s right. However, after a period where the markets gorged on free capital, where opportunities were wasted on share buy backs and increased dividends, as interest rates rise the fragility of the economic environment will be exposed.



Equities: The S&P 500 rose 1.1% The Dow gained 0.87%. The Stoxx rose 0.8%

Currencies: The Bloomberg Dollar Index was up 0.1%. The euro fell 0.1% and the pound fell 0.4%.

Bonds: The ten-year closed around at 2.83%. The 2-year closed at 2.39% and the 30-year closed at 3.017%. The ten-year bund closed at 0.509% and the UK gilt closed at 1.44% and the OAT closed at 0.73%. The U.S. curve flattened to close 2/10 at 43.1 bp, 2/30 at 62.2bp and the 10/30, closed at 19 bp. The U.S. 5-year closed at 2.69%.

Commodities: WTI rose 0.4%. Gold was steady. Copper fell 0.4%.

Bitcoin is trading around $7,906.


Aussie Market Today.

Another contrary day could be expected. Equities rallied overnight, and this points to equities rallying here.  However, any sign of talks about tariffs or Russian embargoes will probably see the equity market weaken.

Bonds did hardly anything overnight and remain somewhat confused. That trend is likely to continue into today.