That imaginary line appears once again to have been drawn in the sand. That line that the markets cannot comprehend or cross. Yes, we had another selloff in the U.S. And it was once again all down to tech. Weak earnings and the continuing oil losing streak were also seen as the contributing reasons. The magic known as Walt Disney was about the only stock to halt the rout in the Dow on Friday. And in Europe it was not much better. Thyssenkrupp AG and Richemont both fell and took the Stoxx with them after releasing disappointing forecasts.
Investors are worried that for once economists could be onto a good thing and be right for once with their forecasts. Investors are concerned that the Fed will continue to slowly hike rates at a time when prices are peaking. China’s data is pointing to issues at home. Soft producer-price gains, weak car sales, problems with developers and a corporate bond market beset with problems are igniting fears of a slowdown in the economy.
The equities markets may be spooked by concerns that inflation may be on the march. The tariffs and higher input prices point to inflation. And with an already tight labour market, these folk are concerned that the current conditions will only exacerbate the problem.
Some point to the break even rate versus inflation for the 5-year bond as now being at 1.9% from a recent high of 2.19% as not being so bearish. What we are seeing though from an investors’ point of view is that pressures are mounting and inflation is the primary concern. Monday will see the market closed for Veteran’s Day so we will have to wait until Wednesday to get the direction of the next leg.
Powell is speaking on Wednesday, and on the 13th, the Treasury will sell $164 bio of bills maturing in 4, 8, weeks, 3 months and 6 months.
Investors will also have to contend with attention being directed towards the growing deficit. The Congressional Budget Office is now forecasting the deficit will be 4.5% of GDP in both fiscal 2019 and 2020 and will worsen to around $1 tr. The hawks are flying away as legislators are most likely unable to agree to cutting anything as they head towards the next election.
Legislators are expected to try to appeal to their core voting blocs and agree to extend selected tax breaks and spending programmes. This will only worsen the situation. Thus, many believe that in 2019, the fiscal position will continue to deteriorate and commodities to slow. The outlook is not so appealing.
Both German and Japanese economies probably shrank in the third quarter. The underlying trend is weak. The outlook is of concern because of the prospect of a trade war. Risks are skewed by the moderating factor that investment growth is actually accelerating.
Equities: The S&P fell 0.92% and the Dow fell 0.77%. The Vix closed at 17.36 while the Stoxx lost 0.4%
Currencies: The Bloomberg Dollar Index rose 0.2%, the euro fell 0.3%, and the yen rose 0.2%.
Bonds: The ten-year closed around at 3.186%. The 2-year closed at 2.928% and the 30-year closed at 3.388%. The ten-year bund closed at 0.408% and the OAT closed at 0.79%. The U.S. curve closed on the day with the following closes 2/10 at 25.4 bp, 2/30 at 45.6 bp and the 10/30 closed at 20 bp. The U.S. 5-year closed at 3.04%.
Commodities: WTI fell 0.8%. Gold slumped 1.3%.
Bitcoin is trading at around U$6,332.
Aussie Market Today.
The trend continues for equities and today should be a risk off day as equities stalled in the U.S. and elsewhere.
Bonds will drift on the day but should remain better bid. With the U.S. market closed for Veteran’s Day, today may lack direction. As the risk off trend continues, we should see a better tone for bonds.
The Aussie dollar continues to hold despite a strong dollar and commodities stalling. With an outlook that is biased towards slowing, the Aussie look vulnerable to a fall.