Lugubrious Markets and Dog Days of Trump.
Lugubrious is a word that sums up the state of markets perfectly unless of course you are a Sovereign Bond trader in which case most of us are not. Equities failed once again in a day that was light and in a market that is becoming increasingly bored waiting for new news.
Trump’s twitter blast aimed at Nordstrom today had the exact opposite effect and the stock rallied. Trump vented because the retailer dropped Ivanka’s range that is sold in the store, the vent is hardly a separation of powers. Banks weakened today and they formed the drag for the market. What was interesting to note was the return to favour of high dividend paying stocks. These have been out of favour since Trump won the Presidential election. This is most interesting because to me this is signaling frustration at Trump’s lack of policy direction and his march towards protectionism, isolationism and immigration policies. Equities are looking for corporate results that are improving or meeting analyst expectations. And for the most part whilst many companies results are improving the results are not better than expected and as such current levels are probably a little high.
The markets want to know Trump’s pro-growth strategies and policies. Macroeconomic uncertainty is holding equities back and driving the switch to bonds and high dividend paying securities.
Bonds today had a great day! The 10 year US Treasury rallied another 5 or so points. Haven assets are the go to for investors currently. The rally in treasuries is the fourth day in a row. The $23 billion ten year auction was bid at 2.33% with a bid to cover ratio of 2.29, compared to 2.5 for the previous ten auctions. This may also be a result of European and Japanese investors investing more securities in their home markets. The 10 year Bund fell 5 bp on strong demand, Portugal’s ten year fell 13 bp and Finland also saw good demand in the long end of their market.
There is a saying “money does not stink” and that’s possibly how to sum up demand for high end properties in New York. Apparently demand for really high end New Properties is rising and the demand is being caused by Russians and Chinese. The Russian buying is notable because under Obama and his sanctions the Russian buyer was noticeably absent and the Chinese were missing because the expectation was that Hillary would win and she had a number of anti –Chinese policies. The Chinese felt that Trump was more to their liking and that he would be easier to negotiate with. That remains to be seen but both buyers are back buying in New York and that is interesting.
Commodites were mixed with gold rallying and oil was up 0.5%. Copper was stronger, rising as BHP’s Escondida Mine is facing a major strike. Copper is now in short supply, and according to Goldman’s is in a deficit, the first since 2011.
The UK Parliament passed May’s Brexit Bill and this paves the way for Brexit.
And another problem for Trump and his attempt to stimulate employment in the coal sector. Solar related business now employs 1:50 people looking for employment and is set to grow at 29%. This is yet another major challenge for coal because gas has also started to re-employ as the price of oil has risen. The headwinds for those in the coal belt are blowing hard.
Aussie Market Today.
The US 10 year closed around 2.34% a gain of 5 pts on the day. The Aussie Bonds will continue to rally although there will be a point when we see a significant retracement. Currently the spread between US Treasuries and Aussie Bonds is now a standard deviation away from the long term mean. Equities were muted in the US but with strong commodities I expect Aussie equites to rise. The US Dollar Index was slightly weaker, and the AUD should strengthen slightly. Credit was stronger on the day.