The Lull before the …..
Today saw the equity market retreat for most of the day and recover to close at an all-time high right on the close. The Dow ended up 8 points, to close 20,620. The reasons for the day’s trading behavior are rather mixed but the end of day rally could have something to do with Trump reiterating that the Tax Cuts will be phenomenal.
The market has now had 7 sessions where the Dow, S&P 500 and the Nasdaq all hit new high closes for each session and this was the first time in 25 years.
The economic news was reasonable, inflation a little higher than expected and the housing starts were slightly weaker. What we did see today was a pullback and that was due part to exhaustion, the markets have rallied hard recently. The Topix was off yesterday and there is some concern as the Japanese equities market slid that perhaps this could flow into the US equities market.
The reason for the fall is given as the sudden spike in the Vix Index, a measure of future volatility in the US markets jumped 1%, however coming off a 10 handle, my belief is that it’s a sentiment change that could just as easily change again. Maybe the expectation of a steepening yield curve is causing some consternation.
Bonds had a good day with the US 10 year rallying 4 bp to close around 2.45%. I think the rally was more as a result of a slightly weaker to neutral equity market and 2.5% seems toppish.
Aussie Market Today.
The day was mixed in the US and lacked conviction and direction. This could translate into a quiet day in the Aussie market for both bonds and equities. My expectation is that bonds could rally and equities could follow suit. Credit should remain well bid, as the demand for yield continues.