In a manner not unlike the Mamas and Papas song ‘Monday Monday’, Wednesday may well turn out to be a cathartic moment for the U.S. market. Full of remorse and disappointment. All eyes are on the inflation read coming into Wednesday. For bond and equity investors, Wednesday may end up being a bittersweet moment. A print showing inflation is stirring will vindicate the equity market’s willingness to rally into the unknown and, for bonds, a print higher than expected will lead to further robust selling.
Today, however, the big news items are that police in Israel want to charge Netanyahu on corruption charges. Apparently, a good Australian, and now Netanyahu’s neighbour, Jamie Packer, is tied up in the investigation. The sins of Netanyahu are corruption and fraud. This is also not the first time the politician has been investigated. Another party offered the Israeli Prime Minister positive commentary in return for less competition. The Attorney General will decide Netanyahu’s fate. However, this accusation may well stigmatise his time as Prime Minister.
Today, we saw a number of hedge funds and traders increase their shorts as they prepare for Wednesday’s inflation release. So far, the Vix has fallen a little and is now trading around 25. Despite the increase in shorts by hedge funds the bond market still managed a rally of sorts. The trading day has been quiet so far. The economists are expecting a 0.3% rise in inflation in January and a core figure of 0.2%. The day has seen the yield curve flatten quite sharply between 2-years and 30-years.
Elsewhere in Europe, 10-year bunds came back into vogue. With the 10-year at about 0.75% for some it represents value. Since the beginning of the year bunds have moved from 0.3% to 0.7%. UK gilts were weaker as a reaction to a spike in inflation. Inflation is at the highest level in 6 years. The BoE has indicated that rates could move faster than expected as the Bank wants to bring inflation back to its target level of 2% within 2 years.
There is to be an investigation into the rout caused by the Vix last week. This is interesting given that all positions are reset at the end of the day and with one hour left on that day there were something in the order of $37 bio of positions needing to be cleared in a market that usually does about $9bio a day. Something tells me something has to give when that happens. It is hard to manipulate the market in that situation. Most traders would look to draw their prices because they can, and they know you have a party desperate on the other side looking to clear.
Equities: The S&P 500 rose 0.27%. The Dow rose 0.16%. The Stoxx fell 0.6%.
Currencies: The Bloomberg Dollar Spot Index fell 0.4%. The euro climbed 0.5%
Bonds: The ten-year rallied 3 bp to close 2.83%. The 2-year closed at 2.10%.the ten-year bund closed at 0.746% and the UK gilt closed at 1.615% and the OAT closed at 0.995%. The U.S. curve closed 2/10 at 72.5bp, 2/30 at 101.5 bp and the 10/30, closed at 28.8 bp. The U.S. 5-year closed at 2.54.
Commodities: Gold rose 0.4% and WTI fell 0.2 %. Copper climbed 2.5%.
Bitcoin is trading around $8,711.80 and steady.
Aussie Market Today.
Equities should continue their rally and in quiet trading forge ahead.
Bonds had a reasonable day yesterday and should look to consolidate on the day. With a lot riding on Wednesday’s inflation print in the U.S., many positions are likely to be wound back on the day. Bonds are vulnerable to drifting higher in yield.
The AUD is currently showing some strength against a weaker U.S. dollar. This strength is probably due to commodity prices. Watch the AUD later in the week as the inflation numbers in the U.S. are released. We could be in for a bit of a roller coaster