It’s Been A While.

It’s been a while since I last posted a blog and I am struggling to think what has changed. Not much to be sure. We still have this inane trade war that started well before Trump but has since been politicised by Trump, and we still have a standoff. Well, a Clayton’s standoff at present. So, what is news? The Chinese are willing to agree to some minor concessions in the vain hope that Trump won’t impose new tariffs later this month and at the end of the year. The Chinese will purchase more agricultural goods and that is probably because they need those goods, but they won’t be giving up any major concessions. Meanwhile, the Trump Administration is imposing travel bans on some Chinese citizens who work for major Chinese surveillance companies. The stage is set, the parties are sitting down to a tête-à-tête. Now let’s see what happens.
All this talk fired up the equity market which certainly was looking for a sign. The equity market rallied hard on the back of a trade deal and the chance of some positive growth. Those expectations were dashed later in the day when Reuters reported that Beijing had lowered its expectations for any significant progress. The day ended though on a positive note with equity markets finishing up on the day. All 11 major sectors ended up, with technology and energy leading the market. The chipmakers saw strong gains and were up 1.7% on the Philadelphia SE Semiconductor index. All up the Dow was up 0.7% and the S&P 500 rose 0.91%. Equity analysts will be looking to a fall of 3.1% for 3rd quarter earnings. Anything less will see the market rally and weaker earnings will see a selloff.
Jerome Powell commented earlier in the week about a favourable economic outlook. To back his view, he pointed to the jobs market. What is of interest is that the quit rate appears to be slowing and this statistic is often used to flag flagging consumer sentiment. The theory is that workers leave when they feel confident about the economy.

The markets may well be looking for one more cut this year. Trade tensions appear to have spilled over into the broader economy as U.S. manufacturing has made a turn for the worse and consumer spending has slowed. A rate cut for October 30 is now running at an 82% probability according to the CME Fed Fund Futures.

Fixed income was weaker on the day and that probably had more to do with the volume of issuance rather than the strong equity market. The market purchased $24 bio of 10-year notes and today (Thursday) there is $16 bio of 30-year debt to bid. The 10 years were 4.5 bp weaker after the auction was met with soft demand. The fixed income market will be looking for any trade deal with a degree of scepticism.

And in the news of the week, Greek 13-week bills are now -0.02%. Who would have thought that could happen after the mess that Greece found itself in a few years ago. The issue for both equity and fixed income markets is just how much Trump wants a deal or any deal. With a possible impeachment probe, Trump will be looking for some political capital and a trade deal would be a boost for his standing however he may not want any trade deal or a minor deal. Markets are poised and waiting.

Market Recap.

Equities: The S&P 500 rose 0.7% The Dow rose 0.91%. The Vix closed at 18.64. The Stoxx was up 0.42%.

Currencies: The euro was up 0.2%, and the pound was down 0.1%. The yen fell 0.4%.

Bonds: (as at 4.30 pm). The ten-year is trading at 1.587%. The 2-year is trading at 1.47% and the 30-year is at 2.086%. The U.S. curve closed on the day with the following closes 2/10 at 11.6 bp, 2/30 at 61.6 bp and the 10/30 closed at 49.9 bp. The U.S. 5-year closed at 1.409%. The 2/5 spread is now -6.4 bp. The ten-year bund closed at -0.55% and the British gilt closed at 0.464%. The 10-year yen gilt is trading -0.20%. The 10-year OAT (France) closed at -0.259 and the Italian 10-year bond (BTP) is now trading at 0.989% and the 30-year at 2.08%.

Commodities: WTI rose 0.1% Gold rallied 0.1%.

Bitcoin is trading around $8,608.

Aussie Market Today.

The stock rally looks likely to continue. However, that may come to an abrupt end as the futures are now down 1% following the announcement Chinese Vice Premier Liu would only stay in Washington one day. The equity markets now look under pressure.

Bonds should be weaker but following the announcement that Liu would be heading back to China, bonds probably will rally.

Credit should be steady on the day. Any weakness in the spread will see buyers emerge in droves to purchase credit and especially so in corporate debt rather than bank debt.
Geopolitical risks remain high and still need to be monitored. Watch developments out of Hong Kong as the protests have a real chance of upsetting sentiment in the region. Watch for a tweet on trade or comment on trade out of China, either commentary will have the ability to move markets.