Today was one of those days when people were somewhat out of sorts. Why? Well, we had a great rally the previous day and today investors took a moment or two to reflect on yesterday’s journey.
After a nonplussed day yesterday, bonds reacted to today’s Fed Minutes and sold a little. Equities ran up the flag for a mixed day. Tech was generally on the nose. However, Netflix and Bio Tech helped the NASDAQ. For the Dow and S&P, tech weighed there too but in the end, banks saved the day.
Investors are concerned that the Fed will raise rates and that the members are concerned about inflation and the economy overheating. The three or so rate hikes gazetted for 2019 look likely to happen according to the projections. Mr. Trump will not be happy. The fact that the debate was held to push rates to restrictive levels is interesting and it’s curious that bonds did not sell off too much. However, bonds have come a long way. Only 13 months ago 2-year yields were 1.25%.
And on further news, the US may pull out of the postal agreement with China. The postal service allows goods shipped in small packages from China to receive a beneficial rate. That rate is seen as a subsidy of some $150 mio by the Trump Administration and is yet another sign of the Administration ramping up its disagreement over trade with China. It will take about a year before the U.S. can hike postal services.
And on the political side, there is a fear that this year’s mid-terms may reflect how closely aligned those members seeking re-election are with Trump. Trump is desperately trying to mobilise his voting bloc.
However, many see this mid-terms as a referendum on Trump. And many voters, both supporters of the GOP and Democrats, are not viewing Trump’s Presidency in a good light. The mid-terms will be about Trump and especially if the unspeakable happens and the GOP hold onto 33 seats. If not, Trump will want to distance himself from the results.
Equities: The S&P was flat while the Dow fell 0.36%. The Stoxx fell 0.4% while the Vix closed at 17.40.
Currencies: The Bloomberg Dollar Index rose 0.5%. while the yen fell 0.3% and the euro fell 0.6%.
Bonds: The ten-year closed around at 3.203%. The 2-year closed at 2.895% and the 30-year closed at 3.37%. The ten-year bund closed at 0.464% and the OAT closed at 0.819%. The U.S. curve closed on the day with the following closes 2/10 at 30.4 bp, 2/30 at 47.3 bp and the 10/30 closed at 16.8 bp. The U.S. 5-year closed at 3.06%.
Commodities: WTI fell 2.6%. and Gold fell 0.4%.
Bitcoin is trading at around US$6,432.
Aussie Market Today.
Equities had a pause and a rethink last night. For fear of the correlation between bonds and equities acting in the same manner, equities should weaken on the day. The stronger Dollar won’t help commodities and with a selloff last night in commodities that weakness may well be reflected in some equity prices.
Political uncertainty and tariffs will drive perceptions and with the Fed continuing to tighten the economic data in the U.S. will need to continue to show improvement. If not equities will sell and therein lies the picture for Aussie equities. We are bound by movements in the U.S. and the outlook could be a little jittery.
Rates and bond yields in the U.S are rising and that will most likely drag the Aussie market along. The differential is widening again and that means that bond yields may look to play catchup.