The bullish tone for markets continues but one has to wonder how long before the market’s optimism tires and investors start to ask the serious questions like how? When and Who pays? Markets can be incredibly fickle and Trump is basking in the limelight for now.
On Friday the Europeans decided not to believe Draghi and bonds widened. The 10 year Bund is no 0.4% well below its average over the last 50 years but now well above its low of -0.2% in July. The selling if US bonds continued again today with the US Treasury 10 year now trading at 2.47%, the 30 year at 3.15% and 5 year at 1.89%. The US yield curve steepened again. Over the week US mortgage rates rose again. Bond markets are now firmly convinced that Trump means growth and inflation and as such are adjusting to meet their expectations. The US $ was stronger and this confirms the bond market views. Credit indices were tighter and the European Markkit tracked about 3 bp tighter on Friday a reasonable tightening.
Stocks rose 0.4%, and over the week the US equity market in particular the S&P 500 has now risen 3% a significant gain. West Texas Intermediate Crude rose to $51.50 a barrel, on the basis that OPEC can hold its agreements. I expect that markets will be disappointed at some point. The UK 10 Year Gilt rose to 1.41%. What is interesting to note on the UK is the hangover of Brexit. After voting to exit, it appears as though the British don’t want to take the financial hit pay for a Brexit exit.
Boeing and Iran announced an agreement for Iranian Air to purchase some 80 jet liners in a deal worth $16.6bio. Trump and the Republicans have been harsh critics of Obama and the new Agreements with Iran. If the Republicans were to cancel the deal then Boeing has said something in the order of 100,000 could be lost (according to a Bloomberg Report). This raises an interesting dilemma for Trump so called bring manufacturing back to the USA and job creation given the bellicose musings for about 500 saved Carrier jobs in Indiana.
Aussie Market Today.
Equities were strong and bonds were weak. That’s the trend and that’s what I expect to continue into the Australian and Asian time zones. Credit will trade a little tighter as credit continues to benefit from gains on equity markets.