A Step In The Right Direction

A Step In The Right Direction

Trump finally has had a win of sorts. Finally something has gotten through the Congress and for Trump that’s a win. Both Democrats and Republicans were happy to agree to a Budget of sorts to keep the Government open until September. Yes we finally had some agreement on something. What was taken off the table was construction of the Wall only repairs and maintenance can be carried out.

Trump’s great promises though are now starting to sound hollow and there are more market luminaries who are raising similar concerns to what we have been talking about some time. That is demographics, productivity and wages growth. Yesterday we had Fink today we had Hunt from PGIM (Prudential Financial Inc asset manager, managing about $1 trillion) raise concerns over a rosy forecast of 3%. Simply put he finds it difficult to reconcile a growth rate of 3%. His main concerns were demographics, productivity and the difficulty in expanding an economy to 3%. Hunt believes that the sustainable growth rate over the next ten or so years is between 1% and 2%. His belief is that the U.S. market is doing fine.

The big news of the day was Trump’s willingness to meet with Kim Jong Un to try and defuse the geopolitical tensions. Trump has also expressed a willingness to meet with other Asian leaders to try and work on a solution.

On the day Trump made comments about breaking up the Wall Street Banks and enacting some legislation that was enacted in 1933. This news sent shivers down the U.S. equity market. A break up of the large banks would be an interesting turn of events.  No proposal has been forthcoming.

On the day, tech shares led the way. Oil dropped to a one month low and focus will remain on those companies left to report earnings. To date 73% of S&P firms have topped profit estimates. U.S. jobs report is due Friday. The tepid round of lagging economic data continues. Consumer spending was down and factory expansion slowed. The second round of French elections happens May 7.

The S&P was up 0.2%. The dollar index was steady. Crude fell to $48.84 a barrel as Libyan output surged. Oil is down almost 9% for the year.

U.S. treasuries were weaker on the day. The yield on a 10 year Treasury is now 2.32%.  Mnuchin also helped the weakness by suggesting that issuing ultra-long bonds was a consideration. On the day the curve steepened with the increasing rates. The 2/10 spread out about 3, too close at 104, the 10/30 closed at 68.2 out 1.5 and the 2/30 closed at 172.4 out about 4bp.

Aussie Market Today.

The strength in the U.S. equity market will provide support for the Aussie equity market. The Fed is expected to leave rates on hold. Bonds have adjusted and some of this could be thought of as some waning of geopolitical risk, and in particular a diminishing likelihood of Le Pen being elected. The risk off trade is coming to effect and perhaps that is why bonds weakened as they did. For the Aussie time zone I expect bonds to soften on the day.