The equity market moved to risk on again, and that’s all predicated on the Chinese and the U.S. coming to some form of agreement over trade. Yet nothing has been formally or informally agreed.

President Xi has quite clearly stated that technology remains off the table and is not negotiable, whilst he has suggested that cars will have lower tariffs applied and the insurance and banking sector is likely to be more accessible.

Investors have breathed a sigh of relief, but it could be a little premature. Meanwhile, all the noise surrounding whether an agreement had been reached with Mexico and Canada over the NAFTA agreement appears to be still in process. Trump is not heading to Peru, suggesting no agreement had been reached as yet.

All this noise, however, has one market sage somewhat concerned. Ray Dalio, the Chairman of Bridgewater and a real Chinaphile, is quite concerned about the rhetoric and the negotiations surrounding trade and especially so with the U.S. negotiating position. Ray has suggested that the U.S. AND China are now in the Thucydides trap and that blows could come to pass.

The risk off nature of today’s market saw one minor blip being the raid on Trump’s lawyer as a response to the Stormy Daniels saga. The raid conducted by the FBI and not associated with Mueller (although some could say there is an association) required very high levels approvals and an approval by a judge.

Apart from the raid, the equity markets appear to be on the synchronised growth story. Trade,  however, will dominate the headlines over the next few weeks.  And with little economic data and little to show for improving fundamentals over the coming weeks, trade will dominate the headlines and hence dominate trading activity.

Bonds suffered in the wake of the risk on trade and the yield curve flattened. The 5/30 year is now at 38.6 bp, the flattest since December 2011. The PPI rose in March by 0.3%, which was a little higher than the market anticipated. There is a chill zephyr in the air.

The ECB’s Noworthy commented that the ECB will end the 2.55 tr euro bond buying programme this year and would lift the deposit rate to start the hike process. Noworthy is on the Governing Council and his views may not represent the views of other members.

And for the monetary hawks, global debt is now at $237 tr in the fourth quarter of 2017. This is more than $70 tr higher than a decade ago. Household debt as a percentage to GDP debt hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. This is a concern for the future as rates have not risen yet.

Bonds feel vulnerable given the level of indebtedness and issuance with widening deficits. And if that’s a concern then one should pause and reflect on Dan Fuss’s call that the 10-year treasury will trade through 4% in two years. This call is based largely on tariffs.



Equities: The S&P 500 rose 1.7%, the Dow rose 1.79% and the Stoxx rose 0.8%.

Currencies: The Bloomberg Dollar Index was down 0.3% while the pound rose 0.3%.

Bonds: The ten-year closed around at 2.80% while the 2-year closed at 2.307% and the 30-year closed at 3.07%. The ten-year bund closed at 0.515 and the UK gilt closed at 1.408% and the OAT closed at 0.757%. The U.S. curve flattened to close 2/10 at 49 bp, 2/30 at 71 bp and the 10/30, closed at 21.8 bp. The U.S. 5-year closed at 2.625%.

Commodities: WTI rose 3.7%  and gold rose 0.3%

Bitcoin is trading around $6,840.


Aussie Market Today.

The run up for equities should continue as more risk is put on the table. With commodities stirring on growth as fears abate, the AUD should rally, and the equity market should continue to advance. Once again, the caveat is China and commentary out of the U.S.

Bonds should be a little weaker on the day and expect a slight drift higher in yield.