As markets prepare for Trump’s tariffs, which start Friday, investors have been left floundering and confused as to what to do. Trump is certainly keeping everyone guessing and no country, it would appear, is immune. From Australia’s steel and aluminium export trade with the U.S., through to the behemoth Germany, no exporter appears immune.
At the G20 Meeting in Buenos Aires, the U.S. blasted China. Meanwhile, the U.S. blasted its key allies whilst dangling a carrot. That carrot being a unified front against China. China, however, in all of this was strangely quiet. Trump is set to impose $60 bio of tariffs on China. The point of all of this is that no one knows where they stand with Trump and his willingness to impose tariffs.
For investors, the strategy is maddening because investment decisions are unable to be made until investors have some clarity and detail. Given the circumstances, investors have no choice but to focus on the scandals that are emerging.
For Cambridge Analytica and Facebook, this is not a good time. With allegations swirling about misinformation, specific targeting of people using self-destruct emails, the Trump campaign is looking increasingly murkier. For Mueller, this may be a manna from heaven and for the UK Government, this is of serious concern.
The spread of targeted misinformation and outright lies has the U.K. Government very concerned. For the GOP, they should be concerned because in the same way people were targeted ensuring Trump’s success. The same means could be used to unseat sitting GOP members. It’s a matter of which party has the bigger cheque book. For the GOP members who happily embraced the misinformation, they may find that misinformation has two sides.
The Cambridge Analytica saga weighed heavily on Facebook. Facebook now finds itself under UK Government scrutiny. There are suggestions that other countries may also ask for more information from Cambridge. At the heart of the allegations lie a world of deceit, high class escorts and easily manipulated politicians. It looks as though Cambridge may have run a dark and murky business and all this was recorded after a few drinks with the now suspended CEO Alexander Nix.
Facebook is embroiled as well and must face allegations across a number of countries. For the likes of Steve Bannon, this also raises questions as he was a Director of Cambridge Analytica and introduced the company to Trump’s campaign. There are also questions around Lukoil, Cambridge Analytica, Putin, and the campaigns run in the U.S. prior to the U.S. elections.
It’s this scandal that the equity market clung to ahead of Wednesday’s announcement by the Fed of its intentions to hike rates (a fait accompli by all accounts). What the scandal is doing though is highlighting Facebook’s involvement in the affair and Facebook’s share price was accordingly affected. Facebook fell 2.5% on the day.
Tech stocks weighed on the market, but the real gainers were the oil companies. The potential of a trade war cast a shadow over export currencies whilst companies such as Walmart and Target sounded alarm bells over imposing tariffs.
Meanwhile, the Stormy Daniels scandalous saga is gaining momentum. There appears to be a lot more at stake than first suggestions. With all of this noise going on, the equity market settled steady and energy helped to stabilise the equity market.
The bond market saw the 2-year treasury note hit a nine-year high. It is expected that the Fed will hike rates at least 3 times this year. There is a suggestion though that Powell may be more dovish than his predecessor. He may only hike three times, thus allowing Trump’s stimulatory tax policy to work.
The U.S. will need significant economic growth otherwise its fiscal deficit will grow alarmingly. The bond market is looking for a hawkish meeting and equities could sell if Powell and the Fed members are too dovish in their comments.
Equities: The S&P 500 rose 0.2%. The Dow gained 0.5% and the Stoxx 600 gained 0.5%%. The Vix closed at 18.2.
Currencies: The Bloomberg Dollar Spot Index rose 0.4%. The euro fell 0.7%.
Bonds: The ten-year closed around at 2.88%. The 2-year closed at 2.35% and the 30-year closed at 3.133%. The ten-year bund closed at 0.578 and the UK gilt closed at 1.48% and the OAT closed at 0.82%. The U.S. curve closed 2/10 at 54.7 bp, 2/30 at 78.1 bp and the 10/30, closed at 23.2 bp. The U.S. 5-year closed at 2.70.
Commodities: The WTI rose 2.2% gold fell 0.4%.
Bitcoin is trading around $8,902.
Aussie Market Today.
The Aussie equity market could be weak on the day despite a positive day in the U.S. The reasons being the continuing revelations from the Royal Commission on the Banks and the imposition of tariffs which could lead to declines in orders for commodities.
Bonds should weaken on the day. With the Fed likely to deliver a rate hike tomorrow, traders will be more likely to be on the short side. However, dovish commentary could cause U.S. bonds to rally before fiscal concerns arise leading to a selloff. A rally could be used to reset shorts.