Catalonia is in the news for possibly all the wrong reasons. Having been part of Spain since the early 1800’s the Catalonians want independence. The only problem is that France won’t recognise the state if it forms and certainly Spain sees the act as somewhat illegal. And this is the problem. Catalonia is causing uncertainty in Europe and this is causing nervousness with rates rising and equity markets slightly pressured.
Uncertainty in the U.S. over the direction of rates, the appointment of a new Fed Chairman and uncertainty over storm affected data is causing the U.S. markets to remain somewhat muted. Interestingly, Fed Governor Jerome Powell was due to speak at an event on Friday. The topic was to be somewhat routine and about rules-based versus discretionary monetary policy. No reason has been provided. However, it is interesting to note that Powell was one of the people interviewed by Trump to succeed Yellen as the next Fed Chairman. There may be an announcement in the offing shortly.
For the moment, the Fed appears to be committed towards pushing the cash rate towards 2%. As the economy improves, the Fed is looking to push rates higher. William Dudley spoke on Friday suggesting that the curve was not too flat and that inflation and wage growth were poised to rise shortly. On Friday the 10-year treasury hit 2.40%. Another rate hike looks like a certainty looking at the probability of a Fed hike. The two-year note is at its highest level in nine years. Should the bonds trend back towards 2% the Fed may well seek to jawbone rates higher.
Earnings season begins for the four major banks which are due to report this week. The Atlantic hurricane season will impact U.S. data on retail sales and consumer prices due later this month.
And in other news, Time Magazine is cutting circulation of its flagship Time magazine, and is reducing the frequency of Sports Illustrated and Fortune.
It may be worth watching the stoush between Trump and Corker which could put the GOP tax plan at risk. Trump has suggested he may revise his tax plan over the coming weeks. Geopolitical risk remains elevated.
Equities: the S&P 500 rose 0.2%, the Dow rose 0.3%.
Currencies: the euro rose 0.7% and the Bloomberg Dollar Spot Index fell 0.3%
Bonds: were slightly stronger. The U.S. 10-year closed at at 2.35%. The two- year bond closed at 2.51%. The 30-year closed at 2.887%. The U.S. bond curve was steady with the 2/10 closing at 84 bp, the 2/30 at 137.4 bp, and the 10/30 closed at 53.2bp.
Commodities: Gold rose 0.4% and WTI rose 2.68% as indications are that the glut is falling and copper climbed 1%.
Aussie Market Today.
Aussie bonds will continue to trade in a tight range with little direction being offered up by offshore movements. If anything, the bonds are likely to drift lower in yield (higher prices). Credit may be slightly weaker, however demand for assets with yield can easily see credit continue its steady rally. Equity market to be slightly stronger on the day as the global theme remains bullish.