Markets are becoming a little bit like choosing an ice cream:  instead of which flavour, it’s which market do I want?

At a time of synchronised growth, markets are perceiving a number of different signals. We have the risk off Donald Trump bombing Syria, we have the risk off Trump twittering against Amazon, we have the risk on Trump just dropping regulations for banks.  And then we have market signals for risk on and off and each in accordance to market perception.

So, which one do we choose? That’s difficult because just like on a hot day when your ice cream melts, so too can your profits if you have the wrong strategy on the day.

Currently, we have the vanilla risk on trade because now that Syria has been bombed, all is good and safe in the world again.  All we have to worry about is how to deal with a rather long in the tooth aging bull market. And this is confusing market professionals.

Which strategy? There are no clear themes and with trade and political issues in the U.S., markets have every right to be nervous.

For both fixed income and equity markets globally, markets are confusing.

The yield curve is flat hinting at subdued long-term growth prospects, productivity and inflation are relatively weak and the Fed is looking to hike rates. Markets are puzzled and frazzled.

Contradictions abound by way of volumes traded, correlations between assets, returns and the Vix. Rising fears over protectionism, a possible change to the status quo of trade, are making markets nervous.

Equities for the moment are taking the brunt of the volatility as bonds and currencies are not sounding any alarms yet.

So, Friday on the back of some sabre rattling, saw the equity market spooked and all that is good again. Equity and the risk on trades will once again jump to the fore, but for how long?

The U.S. yield curve is at the flattest it has been for the past decade and this points to possible problems. There is now a strong likelihood that the yield curve could invert pointing to a recession.

Looking to the week ahead, politics will once again play its part.  The Trump Administration is under pressure from both outside and within. There are a number of issues the administration has to deal with, so any distraction is good.

The trade deals have to be negotiated and it appears post bombing Syria, both the Putin regime and the Trump administration wish to parlay. The imposed restrictions on Russian companies may be working or perhaps neither Trump nor Putin want an avoidable accident in Syria.



Equities: The S&P 500 fell 0.3% The Dow fell 0.5%. The Stoxx rose 0.1%.

Currencies: The Bloomberg Dollar Index was down 0.1%. The pound rose 0.1%. Swiss has been weak of late and that is being attributed to Russian sanctions biting into Russian companies and oligarchs alike.

Bonds: The ten-year closed around at 2.82%. The 2-year closed at 2.36% and the 30-year closed at 3.027%. The ten-year bund closed at 0.51% and the UK gilt closed at 1.436% and the OAT closed at 0.74%. The U.S. curve flattened to close 2/10 at 46.4 bp, 2/30 at 66.6bp and the 10/30, closed at 19.9 bp. The U.S. 5-year closed at 2.67%.

Commodities: WTI rose 0.3% on. Gold rose 0.7%. Copper rose 0.1%.

Bitcoin is trading around $8,282.


Aussie Market Today.

The risk off trade was Friday’s trade. However, most traders were into the weekend when all the action was happening. Equities should benefit today from risk on unless we have further geopolitical issues.

Bonds will be hit by the risk on trade and should continue to be sold. Rates and yields are moving higher over time and this means shortening. There will be times to buy.  However, today probably won’t be one of those days. Credit should continue to tighten as equity markets continue to improve.