Lame duck.

Trump warned that if he did not win the Senate and the House, stocks would fall. Well, so far so good. Stocks had a nice rally and bonds were steady. Why? Well at times when we are in gridlock, bonds in the past have performed and equities have settled. For everyone, the uncertainty of elections has been removed and importantly for the hawks, some of those promises such as further tax cuts will be difficult to do.

The fiscal initiatives that have already been pushed through will survive but the House will now be a very different entity for Trump. Trump will no longer be able to be the spendthrift, the wall is unlikely to proceed and perhaps some attention may come back to initiatives to control the ballooning deficit. Trump will now have to negotiate rather than demand.

What Trump is left with though is a rump of arch-conservatives as a number of those GOP members that tried to distance themselves from Trump were voted out. The Senate will be more Conservative.

The outcome saw Healthcare rally because the status quo will remain in place for now.  Technology soared 2.4%. Consumer discretionary gained 2.8% due to performing.

And Geoff Sessions lost his job as Attorney-General after he resigned under intense pressure from Trump because of the Mueller-led Russia investigation. The revolving door keeps revolving.

The day saw this week’s issuance finish with the 30-year auction suffering its lowest demand since 2009.  With all the hubbub, it is easy to forget that short coupon bonds are setting new yield highs.

Twos have now moved to 2.95% (the highest level since 2008) and the threes have moved to 3.03%. This may be reflecting that the street is carrying substantial longs and maybe backing up their purchases. Many believe the curve is on a flattening course partly due to the Treasury massaging the curve through issuance and not wanting a steep yield curve.

The two day Fed policymakers meeting began today with no expected change to interest rates this month.  However, the futures market has the rate rise from 2% to 2.25% happening at the December 18-19 policy meeting. For Powell, the challenges will appear in 2019. The more data we are seeing suggests that the U.S. is late cycle, that activity is slowing and that Powell will have to chase prices or react to slower growth and at a time when the ECB may be looking to raise rates. The worm is turning.

Across the pond, German bunds (German bonds) rose as risk was no longer a dirty word. The 10-year bund rose to 0.445%. The Italian bonds rallied.  The peripherals saw solid gains.

And if we thought that China and the U.S. were going to kiss and make up at the G20 meeting being held at the end of the month, well things just got tougher. The U.S. is set to impose new duties on Chinese aluminium sheet products from 96.3% to 176.2%. U.S. crude inventories continue to increase as crude production has jumped to a record 11.6 mln bpd. U.S. soybean exports to China have slumped 94% whilst exports have slipped 30%.

Market Recap.

Equities: The S&P rose 1.83%. The Dow rose 1.94%. The Vix closed at 16.86. The Stoxx gained 1.1%.

Currencies: The Bloomberg Dollar Index slipped 0.2%.  The euro rose 0.3%. The pound rose 0.4%.

Bonds: The ten-year closed around at 3.219%. The 2-year closed at 2.948% and the 30-year closed at 3.43%. The ten-year bund closed at 0.445% and the OAT closed at 0.81%. The U.S. curve closed on the day with the following closes 2/10 at 28.9 bp, 2/30 at 47.8 bp and the 10/30 closed at 21.2 bp. The U.S. 5-year closed at 3.064%.

Commodities: WTI fell 0.7%. Gold was steady and copper rose 0.5%.

Bitcoin is trading at around U$6,498.

Aussie Market Today.

Equities should rally on the day as the general attitude is that risk assets are once again in demand and gridlock policy will remain steady.

Bonds should be slightly weaker on the day. Expect some drift as risk is once again being taken. The rally in equities was good for credit as we saw a little rally in the Aussie Itraxx last night.

The Aussie dollar is stronger on a stronger commodities outlook and a weaker dollar.