Markets benefited Friday by fobbing off any political news relating to Trump and instead focused on economic data. And forgetting about Trump could be a good thing for markets. The fallout from the sacking of Comey has yet play its full hand whilst the appointment of a special prosecutor caught the Trump Administration off guard even though it was Rosenstein who made the appointment. Expect the political fallout to intensify and markets will react accordingly. The issues with Russia have yet to be addressed and unfortunately for the U.S. these issues will plague and haunt the Trump Administration making it very difficult to concentrate on any policy initiatives and make it difficult for any bipartisan agreements to be reached. The bipartisan agreements will be necessary if the current administration is to have any success in meeting its agenda and promises.
Meanwhile geopolitical risks are increasing as we look around the globe. It has come to pass that the Philippines President Duterte was told by China’s Xi Peng that if they failed to acknowledge China’s dominance in the disputed seas off the coast of the Philippines they risk war with China. North Korea launched another missile and Trump is travelling through the middle East and Europe this week. Anything that Trump says will be taken literally so discretion is required.
The UK have said they would withdraw from Brexit talks should the burden of EU demands prove to be too onerous. It has been suggested by several European Ministers that the Bill could be anywhere between 50 billion euros to 100 billion euros. The UK is suggesting even 1 billion euros is too much. The legal issues surrounding the divorce will be interesting given the British have already commenced the withdrawal from the EU. The situation is likely to become more complicated.
In the U.S the equity markets had a solid rally. John Deere set a positive tone with their results after they exceeded expectations. John Deere was up 7.3%. Some of the rally was opportunistic buying however it was the positive tone of commodities markets that set markets ablaze. Oil rose to $50.53 up 2.39%. Copper rose 1.8% on the back of Thursday’s positive U.S jobs data. It’s all sentiment that is driving markets currently
The Bloomberg Dollar Spot Index fell 0.6%, the euro was up 0.7% and the pound gained 0.5%.
Bonds amongst the turmoil of rallying markets were surprisingly steady. In Europe both the 10-year OAT and Bund were weaker in price rising to 0.799% and 0.365% respectively. The U.S 10-year treasury closed at 2.235% up about 1 bp on a day that saw solid equity gains. The Bonds are yet to be convinced even though the probability of a rate rise in June has now climbed to 75.1% according to the futures.
There is a lot more to come out of this current political crisis that threatens to engulf the Trump Administration. Perhaps this trip will do Trump some good and perhaps he will listen to others and work out a way to ensure that his progressive agenda proceeds. If he does not then the U.S economy faces a long period of inaction as both sides of politics slug it out and try to smear the other. As long as Trump remains distracted his Administration is distracted and markets will only wait for so long. Much of his agenda has now been pushed to 2018 by the Markets and if the belief is that the agenda won’t occur in a timely fashion then markets will become testy.
The Aussie Market Today
The Aussie dollar should benefit on the day. Commodities were generally stronger and this bodes well for the resource sector. Currency markets appear to be not placing a lot of thought about an imminent rate rise in the U.S. and that’s possibly a reason why the Euro has soared recently and the Aussie has gained ground.
Bonds in Australia should be steady as the direction from the U.S is not clear. Maybe the bonds weaken about 3 bp but I am not looking for any large movements. The Aussie markets should be steady, geopolitical risks will weigh upon the markets as they arise, however at this point in time all is quiet.