It’s what said.

A new day a new record for the S&P 500. What more is there to say?   And we can all thank Powell. Powell’s comment has left the U.S. market in no doubt that a rate cut is due and due shortly. And the Fed Minutes also confirmed what lies ahead, another rate cut.

With Powell to address Congress the next two days, the good news is probably out there. So, the next moves will be interesting for both bonds and equities. Both have seen significant gains over the last six months and for many investors they are already discounting the quantum of interest rate cuts in the future.

The equity market saw solid gains from the technology stocks, whilst financials retreated on lower interest rate concerns. The days trading was a little under the average trading volume.

Bonds on the day were mixed. The 10-year rose to 2.10% before closing around 2.06% following Powell’s comments whilst the curve steepened markedly. The 2/10 widened to 23 bp. And the 2/30 widened some 12 bp. The chance of a 50 bp in July rate cut once again rose to 28.7% from 3.3% whilst the chance of a 25bp cut fell to 71.4%, suggesting that the market is expecting at least one more cut.

The focus for the market in Powell’s comments was the line “uncertainties continue”. The market spin is that uncertainties alone rather than data will cause the Fed to ease at the end of the month. The bond market is more concerned about the global economy as opposed to the domestic U.S. market. The slowdown in China and weak manufacturing data in Europe are causing concerns.
The 10-year auction went to average demand. Indirect bidders took 60.76%, direct bidders took 12.85% and the primary dealers took 26.39%. The level of primary dealer activity is interesting as it points to less institutional demand and more trader driven demand.

Europe, unlike the U.S., was a little troubled.  Strong manufacturing data from France caused bond investors to be wary of the day’s German bund auction. Italy re-issued a 50-year bond with very strong demand being seen from German investors.

The 3-billion euro top up drew bids of 17 billion euros. The buyer breakdown was 35% German buyers, 22% from the UK, 8% were investors from the U.S. Overall 84% of the bids were not Italian investors. Central banks accounted for 3% of demand.

Oil spiked today, and that appears to be as a result of U.S. oil producers slashing production in the Gulf of Mexico as the first of the major summer storms threaten oil production.

Market Recap.

Equities: The S&P 500 rose 0.45%. The Dow rose 0.29%. The Vix closed at 13.03. The Stoxx Europe 600 Index fell 0.2%.

Currencies: The euro rose 0.4%. The Bloomberg Dollar Spot Index fell 0.3% and the yen rose 0.4%.

Bonds: (as at 4.30pm). The ten-year is trading at 2.06%. The 2-year is trading at 1.828% and the 30-year is at 2.574%. The U.S. curve closed on the day with the following closes 2/10 at 23.1 bp, 2/30 at 74.6 bp and the 10/30 closed at 51.3 bp. The U.S. 5-year closed at 1.828%. The 2/5 spread is now -0.4 bp. The ten-year bund closed at -0.305% and the British gilt closed at 0.759%. The 10-year yen gilt is trading -0.115%.

Commodities: WTI was gained 4.4%. Gold rose 1.3%.

Bitcoin is trading around $11,759.

Aussie Market Today.

The trend is that with offshore rallying and expectations of a rate cut in the U.S. equities will rally.

Bonds will be bound by offshore movements. Bonds should be steady on the day. Credit remains in demand and bank sub debt is starting to see a bid tone after spreads pushed out earlier in the week.