Markets shrugged off the previous day’s ISM report. It even shrugged off the part that even though its early days in Trump’s tariff wars, some materials have materially increased in price.
For equity markets that believe earnings growth can increase by another 4% to grow at 17% for the second quarter, this could impact those calculations at a later date. The only positive is that taxes will be lower and that cashflow can now be earmarked for other things such as dividend increases or share buy backs.
Navarro, Trump’s Director of national Trade, gave the equity market a thumbs up when he said Trump was not targeting Amazon and that investors should use this pull back to invest. Trump had previously hinted that he was going to take action against Amazon’s relationship with the U.S. Postal Service.
As a result, and with little economic data to be released this week, investors turned on the ‘risk on’ dial and proceeded to purchase equities. Bonds, however, felt the heat of the risk on trade. With payrolls the main focus for traders this week and due Friday, Friday becomes an important day.
Bonds look likely to be range bound until the end of week and more than likely will drift higher in yield. A strong number will pressure bonds but may also pressure equities as investors opine about 3 versus 4 tightenings and a possible overreaction by the Fed to the increase in employment.
Across the pond, Europe is enjoying some growth. Concerns over the tariff spat with the U.S. remain. However, the PMI remains strong and is the main reason why 10-year bunds rose 2 or so basis points on the day. The general direction for bunds is higher yields.
Equities: The S&P 500 rose 1.3%. The Dow rose 1.26%. The Vix closed at 21.1.
Currencies: The pound gained 0.2%.
Bonds: The ten-year closed around at 2.78%. The 2-year closed at 2.28% and the 30-year closed at 3.01%. The ten-year bund closed at 0.5030 and the UK gilt closed at 1.358% and the OAT closed at 0.73%. The U.S. curve closed 2/10 at 49.3 bp, 2/30 at 72.90 bp and the 10/30, closed at 23.4 bp. The U.S. 5-year closed at 2.599.
Commodities: WTI fell 2.8% on. Gold rose 1.3%.
Bitcoin is trading around $7,410.
Aussie Market Today.
Today could be seen as a risk on day. Equities should rally if there are no hiccups. Bonds will be weak on the day as investors concentrate on the risk off trades.