Markets Want Details.
Markets continue to stall or rather trade in a very tight band with low volumes. Markets are still awaiting Trump’s plans on his spending spree, tax cuts and deregulation. US stocks retreated from records and treasuries continue to advance. Initially the stocks surged however by the day’s close treasuries had rallied and stocks stalled.
Earlier in the day comments from Philly Fed President Harker suggesting a rate hike in March sent crude tumbling and saw the dollar stronger, meanwhile treasuries ran counter to the comments. Interesting comments by a Wharton Business School Professor suggested that the markets could tip 10% either way. The markets could rally 10% if Trump implements his stated objectives but if he fails then the market could retreat 10%. A lot depends on whether Trump implements tax reform and deregulation or brings in protectionism and tariffs. Everything seems to be on a knife edge.
What is interesting though is that ownership of US Treasuries owned by foreign interests is falling. As commentators from Merrill Lynch quip “from global to local”.
The drivers for declining ownership is apparently due to rising interest rates in Europe and Japan. In July 2016 about 40% of the Bloomberg Global Sovereign Index was trading below 0%, that number is now 24%. In number terms $6tr are now trading above zero. The size of the index is about $25.8tr. There is also big demand for strips. (Strips are bonds and notes divided into the sum of the parts). The demand for strips is being led by liability managers seeking duration in their portfolios.
Aussie Market Today.
The 10 year US Treasury is trading about 2.39%, this is remarkable given last week we were trading close to 2.5% last week. I expect that the Aussie Bond market will continue to strengthen. The equity market will be steady to slightly down until we provided a clearer picture of Trump’s vision and policies.