Off To The Races on Hope, Well Maybe
Another record high for the US equity market and this rally has gone on for seven consecutive sessions and recorded the first close above 20,600 to close on the day about 20,611.86. It would appear as though the market is running on Trump’s promises and the expectation of high growth rates in the range of 4%. Given the US economy is running with an unemployment rate of 4.8% the economy is close to full employment so it’s difficult to see how the growth will occur.
The Treasury market is looking for rate hikes by the Fed and the betting seems to be for March however there is a dissenting view that the hike will occur in May. The current view is that the odds for a rate hike in March is 26.8%, May 37.7%, June 78% and July is 81.9%. What we have at present is the Treasury Market gaming the Fed and this could be a disaster if the economy does not accelerate as expected. After all the markets are behaving based on Trump delivering a Phenomenal Tax Policy and a massive investment in infrastructure.
What will be interesting to understand is how Congress will react to Trump given that Congress has already told Trump that his nomination for Labor Secretary Puzder would not be confirmed, this comes on the back of the challenges that Mike Flynn’s resignation is creating for Trump and Trump’s attack on his security services as a result of Russian involvement in the US election.
The distractions that Trump is facing could mean that policy is set aside whilst the fires are quenched. Any slowing of policy releases would cause the markets to re-evaluate current levels in both bond and equity markets. It is up to Trump now to show leadership and act accordingly and release Policies that can further stimulate the US economy and increase productivity.
On the day the US 10 year treasury closed at 2.50%, the US 30 year curve flattened to 110 bp and the 2 year closed at 1.26%. Oil was off on the day down 0.3%.
Aussie Market Today.
The US 10 year closed about 2.50%. Stronger sentiment and economic data buoyed the US equity market and bonds weakened marginally. On the day I expect the positive equity trend to continue and see a slight rally in bonds. Commodities were mixed on the day.