The big news is that Trump is delaying the scheduled increase in tariffs set for March 1. China and the U.S. economies appear to be both reeling under the weight of trade barriers and a compromise is being sought. It was just the sort of news stocks wanted. Equity markets in China had a good day with blue chips rallying 6%. And in Europe, an optimistic tone was set. All good so far.
In Britain, Theresa May appears to be lobbying hard to delay the Brexit vote. She has even gained Corbyn (Labour) support in what could be seen as a bizarre bipartisan relationship.
For stocks, it became a risk on party day. For those of the risk off persuasion, it was a tough day. Italian bonds found a bid, but for other bonds, it was a day of trying to find a bid. Italian bonds rallied after Fitch affirmed its BBB rating and the BTP/ Bund spread tightened 10 bp. The 10-year BTP is looking to rally towards 2.57% if the chartists are correct.
The Italian 10-year is currently trading 2.72%, so a way to go yet. Well, maybe not that bad but the tone was bearish. The bunds 2s/10s steepened a point (when rates are at 0.1% that’s a move). The move today interestingly matched the same movement earlier on February 14. The U.S. curve also steepened.
Oil took a hit today following a Trump comment urging OPEC to relax its price. Ahh, its good to be the King.
The Trump news was a welcome relief for stocks today and prompted a solid rally. Gains were pared later in the day after a fall in utilities, and real estate weighed on the S&P 500. General Electric shares bounced after it announced the sale of its bio-pharma unit for $21.4 bio.
Mining shares bounced. Newmont Mining shares climbed after it was announced that Barrick Gold had launched a hostile bid. The industrials sector received a bump up from Caterpillar, up 2.7% and Boeing, up 0.9%.
Despite all the good news, the gap between 1-and 5-year yields is concerning some. For those analysts, an inverted curve around these points is an indicator of recession. That’s based on the knowledge that a wide array of lending occurs in terms of 5-years or less.
Demand in the belly of the curve is robust and today’s 5 -year auction was no exception with the top bid just under the prevailing rate at the time of the bidding deadline. The bid to cover ratio was 2.4. Direct bidders bought the most 5-year notes in an auction since July 2014. Direct bidders accounted for 22.52% of the $41 bio auction.
Powell has an interesting day ahead when he heads to the Capitol Hill for hearings on the economic environment. Now that Democrats own the House, he will have to convince the Democrats that the recent pause in rate hikes and dovish talk was not due to Trump’s influence.
It will be an interesting period for Powell. And now that the primaries are about to start, the pivotal New Hampshire primary is setting up to be a contest between Bernie Sanders and Elizabeth Warren. Politics is about to become interesting again.
Equities: The S&P 500 rose 0.14% and the Dow rose 0.26%. The Vix closed at 14.85 while the Stoxx rose 0.30%.
Currencies: The Bloomberg Dollar index fell about 0.1% while the euro gained 0.3%, and the pound rallied 0.4%.
Bonds: (as at 4.30pm). The ten-year is trading at 2.668%. The 2-year is trading at 2.512% and the 30-year is at 3.031%. The U.S. curve closed on the day with the following closes 2/10 at 15.6bp, 2/30 at 52bp and the 10/30 closed at 36.2bp. The U.S. 5-year closed at 2.483%. The 2/5 spread is now -2.9bp. The ten-year bund closed at 0.11% and the British gilt closed at 1.176%. The 10-year yen gilt is trading -0.032%.
Commodities: WTI fell by 3.2%. and Gold fell by 0.1%.
Bitcoin is trading around $3,822.23.
Aussie Market Today.
Equities should be stronger on the day. Optimism over a trade deal between China and the U.S. is driving sentiment and this will help stocks.
Bonds on the day will probably be weaker. Risk on is the call today and that won’t help bonds rally any further. We could see some profit taking. On the back of healthy gains on stocks, the credit markets have rallied. On that front, we have seen two interesting deals launch both of which were well subscribed. Virgin Air and McDonalds Foods both launched yesterday.