The great myth is the strength of the U.S. economy is all Trump’s doing. That’s pretty much the message the GOP is going to the mid-terms with. Trump is hoping to pin the equity market and the economy on his mastery and thereby should the Democrats seize the House then any stalling would be seen as un-American. This time the mid-terms are really interesting. Voter turnout is expected to be at record levels and the Democrats may have just overplayed their hand with Kavanaugh.
Meanwhile, Trump is breathing fire into a lifeless market by saying he wants a deal with China by the end of November. Given Trump is expected to meet China’s President at the G2O meeting at or around November 30 this will be a tall order. This seems like noise to get voters in and suggest something is happening.
In amongst all this is what some major corporates have done to stem the red tide. Yes, they have gone back to the old tested method for supporting share prices, raising the dividend. At a time of uncertainty and with the economy as good as it gets and the impact of a significant tax cut, upping dividends should be the last thing a Board should do.
Capex is falling and that’s a problem especially as productivity and wages steadfastly remain weak. Those corporates, if not spending money on capex, should be reducing debt. And those actions will come back to haunt the U.S. market as the economy slows as projected in 2020.
But let’s focus on markets. Payrolls were stronger than expected and wages were in line with expectations. The big rebound was Hurricane Florence induced. A strong rebound in leisure and hospitality payrolls accounted for a third of the increase.
Bonds were the go on Friday and like a hurricane the upward movement left a sea of devastation. The 2-year closed at 2.91% and the 10-year is at the highest level since June 2008. Bond investors are very nervous and they may well should be. This week sees another supersized issuance week for T notes and bonds.
A record $83 bio will be issued and everyone is on a knife edge because we also have Trump talking about tariffs on, tariffs off. With the mid-terms and the expected turbulence in equities, this week could be rather interesting. Hedging costs are expected to slow international demand for treasuries. Lower international demand could send the dollar weaker.
Equities: The S&P fell 0.6% and the Dow fell 0.43% The Stoxx raced ahead and gained 0.3%. The Vix closed at 19.51.
Currencies: The Bloomberg Dollar Index rose 0.1% while the yen fell 0.5%.
Bonds: The ten-year closed around at 3.22%. The 2-year closed at 2.912% and the 30-year closed at 3.462%. The ten-year bund closed at 0.428% and the OAT closed at 0.786%. The U.S. curve closed on the day with the following closes 2/10 at 30.5 bp, 2/30 at 54.7 bp and the 10/30 closed at 24 bp. The U.S. 5-year closed at 3.042%.
Commodities: WTI fell 1.3% and Gold fell 0.3% while Copper rose 3.4%.
Bitcoin is trading at around U$6,417.
Aussie Market Today.
Forget equities today, it would appear. Bonds had a good selloff Friday and that trend looks set to continue. We are back in risk off mode except everything looks risky.
Bonds look like they will be in for a tough time today. Sentiment is rapidly changing. Bonds had a tough time in Sycom and that trend will continue today unless some announcement stalls the price weakness. Yields to rise.
The AUD is running as a proxy for the yuan and once the talk about trade negotiations with China are seen as nothing more than posturing, the AUD will slip.