Today was not such a great day for markets but most assets were in synch. Commodities were the culprit today. Commodity prices have been spiking higher as a result of the Trump tariffs, and embargoes on Russia. Commodities have shot up, making raw material for expensive for manufacturers. In combination with higher oil prices this has led to a fear of inflation spiking higher.
The fear of rising inflation led the bears on a merry chase. The bears won, and bond yields moved higher with the 10-year breaking 2.90%. As the bonds moved through 2.9%, the equity market fought its own demons and sold. Technology stocks were hit on earnings concerns whilst consumer staples saw losses as a result of earnings misses. The real estate sector also saw losses mount as bonds tracked higher.
The two-year debt treasury auction next week has been increased. The Treasury will auction $32 bio of fixed rate notes Tuesday and $17 bio two-year floating rate notes on Wednesday.
Adding to the fuel, the BoE’s Mark Carney has told markets to expect rate hikes for Britain over the next couple of years. Eurozone bonds spiked to one-month peaks on fears of higher oil prices. Swiss bonds were marked higher as the currency weakened. The gap between Italian and German 10-year borrowing costs narrowed to 117bp
The pressures are now mounting on markets. The concern over inflation raises concerns over growth, as growth needs to occur at a more rapid pace to subdue inflation. A higher discount rate for equity cash flows lowers the P/E ratios but also heightens risks within the economy and the stock market.
On another note, today marked 55 hours in the UK where a coal fired power station has not been used to generate electricity. Wind and solar are now providing the bulk of electricity generation in the UK. The important lesson here is that technology is rapidly changing and this will be the area of further jobs growth.
Equities: The S&P 500 fell 0.6% The Dow fell 0.34%.
Currencies: The Bloomberg Dollar Index was up 0.5%. The euro fell 0.2%, and the pound fell 0.8%.
Bonds: The ten-year closed around at 2.91%. The 2-year closed at 2.43% and the 30-year closed at 3.10%. The ten-year bund rose 7 bp to close at 0.6% and the UK gilt surged 10 bp to close at 1.52% and the OAT closed at 0.748%. The U.S. curve steepened on the day to close 2/10 at 47.8bp, 2/30 at 66.60bp and the 10/30, closed at 18.6 bp. The U.S. 5-year closed at 2.733%.
Commodities: WTI fell 0.4%. Gold fell 0.2%. Nickel fell 1.3% and aluminium fell 2.1%
Bitcoin is trading around $8,270.
Aussie Market Today.
Equities and bonds appear to be in the same boat today, so expect some weakness. Geopolitics could play a part. The trend for moment appears to be risk off as markets have become rattled by the surge of commodity price and concerns over inflation.