Markets now seem to have opined that Trump was merely barking when he announced his tariff policy. In an attempt to force NAFTA to agree to new terms that were more suited to the U.S.,  the announcement appears to have backfired a little.

NAFTA will meet again after these talks are finished to discuss yet more detail on trade. However, the real twist was with Europe which can equally apply a tariff to a significant number of businesses that are domiciled in the Republican Leaders’  Home States.

The equity market is rallying and that’s because it believes the tariffs won’t be implemented. Goldman Sachs pilloried the idea and suggested the least affected was China and that was Trump’s main target. Meanwhile, it appears as though Trump’s main economic adviser Gary Cohn was on the verge of resigning should Trump implement the tariff policy, creating yet more disarray in an already chaotic White House.

Treasuries steadied and that’s probably because the fear of inflation has dissipated for the moment. The factors that will drive fear will be subtler and far more brutal. That will happen if the economy slows.

The bond market will then have to contend with a falling dollar, decreasing tax revenues, increased debt issuance, a widening deficit and a decrease in bond purchases by central banks. That time may never happen but if it does, then the bond markets are in for a nasty period.

So as trade tensions ease, it’s party time again. North Korea appears to suddenly be wanting to de-escalate tensions on the Korean Peninsula. As long as the leadership in North Korea is guaranteed control, it appears as though North Korea may give up its attempt to be a nuclear power and behave.

This was a good signal for equity markets to rally and they did. What happens next is anyone’s guess, but for the moment it’s happy days.

In Europe, the bond market did a small about face. Bunds spiked as risk appetite in Europe continues to grow as confidence in the economy continues. There is an expectation that as growth forecasts continue to improve, the ECB purchases will slow.

During the past couple of months, the ECB has been slowing its purchases of government bonds and has done so to a greater degree than the market thought and without turbulence. The Public Sector purchase programme (PSPP) on a composition of 60 bio euro per month has fallen from around 80/90% to 70%.

Today, Senegal issued $2.2 bio of Eurobond after attracting $10 bio of bids.


Equities: The S&P 500 rose 0.26%. The Dow rose 0.03 %.  The Stoxx 600 rose 0.1%. The Vix closed at 18.29.

Currencies: The Bloomberg Dollar Spot Index gained 0.2%. The euro rose 0.1%

Bonds: The ten-year closed around at 2.88%. The 2-year closed at 2.25% and the 30-year closed at 3.15%. The ten-year bund closed at 0.67 and the UK gilt closed at 1.52% and the OAT closed at 0.93%. The U.S. curve closed 2/10 at 63.1cbp, 2/30 at 89.7 bp and the 10/30, closed at 26.5 bp. The U.S. 5-year closed at 2.65.

Commodities: The WTI rose 0.1 %. Gold rose 1.2%.

Bitcoin is trading around $10,666.

Aussie Market Today.

Expect some movement today in equities. The market should rally as the story about commodities and Trump’s apparent backing down on tariffs gains momentum. It could be a good day, especially if the story on easing tensions on the Korean Peninsula gains credibility.

Bonds could be somewhat sluggish. Expect a little selling as the equities market rallies.