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.
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.
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.
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.
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.