Just when the bears were beginning to think that it was safe to place a few bets, the icy winds of the geopolitical climate and political climate appears to be thawing. The risk on trade of placing bets on equities has risen and equities have benefitted. And under the current market, they probably should be benefitting.
Equities on the day, after a strong start, pared back their gains late in the afternoon (last 30 minutes) to close slightly down. The Vix fell to 15.6.
After all, the banks this week saw revenues rise some $2.5bio this quarter as a result of the tax cuts flowing through. And they are not alone. Amongst the larger listed companies in Europe and the U.S., 83% AND 71%, respectively, are expected to raise dividends. Dividend growth is expected to grow at some 8% for the S&P 500.
Dividend yields are looking healthy again at 2.1% for the S&P 500 stocks. Share buybacks are expected to increase to around $800 bio in 2018 versus $530 bio in 2017. Adding back the buybacks, shares are now providing a 5% yield, so it is little wonder that the major indices are rallying. But for how long?
Bonds are steadily rising and today the ten-year retreated a few points to close around 2.87%. However, whilst it appears as though the bears in the U.S. are losing, Europe presents a very different problem.
Subdued inflation is prompting many to believe that the ECB will be cautious. The gap between short dated U.S. and German borrowing costs is the widest it has been for some 30 years.
Bonds in the UK rallied as a result of low inflation numbers, whilst both Italy and Portugal are seeing bond yields tumble. This contrasts to U.S. rates where we are seeing the 2-year at 2.43%, a decade high and pushed the gap with German bonds to some 300 bp. The UK 2-year fell some 8bp today on the announcement of lower than expected inflation numbers for the UK.
Equities: The S&P 500 rose 0.08% The Dow fell 0.16%. The Stoxx rose 0.3%
Currencies: The Bloomberg Dollar Index was up 0.2%. The euro was steady, and the pound fell 0.6%.
Bonds: The ten-year closed around at 2.875%. The 2-year closed at 2.43% and the 30-year closed at 3.06%. The ten-year bund closed at 0.53% and the UK gilt closed at 1.417% and the OAT closed at 0.748%.
The U.S. curve flattened to close 2/10 at 44.2 bp, 2/30 at 62.90bp and the 10/30, closed at 18.5 bp. The U.S. 5-year closed at 2.733%.
Commodities: WTI rose 3.4% on falling inventory. Gold rose 0.1%. Copper rose 2.6% and nickel surged 8% on concerns over Russian embargoes. Nickel is used in stainless steel production.
Bitcoin is trading around $8,175.
Aussie Market Today.
Equities will probably rally a little on the day. Bonds look likely to be a tad weaker as movements overnight pushed 10-years bonds yields higher. The market continues to look to the U.S. for direction.
Geopolitical risk, while currently subdued, is still elevated and is the main risk at present.
Continue to monitor the #potus tweets.