Traders are poised for a sign whether it be from the Fed or from trade negotiations with China as to what is their next move. The S&P 500 has been tepid and fell again today as the stock heavyweights Amazon Inc, Facebook Inc, Alphabet Inc, and Netflix Inc, all fell.
Investors will be looking to how the Fed discusses perceived downside risks around trade and supply lines. The Fed wants to see a sustained economic expansion.
Trade is weighing on the market. Negotiators are meeting this week in China for a couple of days of talks and neither side is signalling any hope of breakthrough. Trade aside investors will look towards Powell’s comments to provide the guide for the trajectory of U.S. rates.
Corporate earnings will remain in focus. Seven of the 11 sectors closed in the red as stocks await the Fed. Earnings reports so far have been kind for stocks as 76.1% of those companies that have been reported have beaten the bottom line. Volume on the exchanges was about average for the day.
On the day treasuries staged a minor rally. Since the beginning of the year 10-year have fallen 63 bp and look likely to see the steepest fall in five years. Gilts traded to their lowest level in 3-years.
The issue for markets is that globally business sentiment is falling. That could be a tech issue as a new tech revolution is ushered into our psyche. Confidence in business sentiment is falling because of trade but it may also be because business is grappling with its future needs and how it transforms in the new environment.
The age of today is less about fiscal restraint and more about borrowing as much as you can get and at some point, as conditions change that debt binge will need to be repaid. If the Government over that time has not built a solid tax base with good tax flows, then one wonders what can happen if that Government continues to build massive budget deficits. The U.S. is perhaps going to have to face that issue at some point.
The U.S. Treasury Department has said it plans to borrow twice as much as anticipated in the third quarter. The department will issue $433 bio net in debt between July through to September. The department originally planned to borrow $274 bio. The sale of treasuries and bills is being used to help finance the budget gap that is rapidly widening after the $1.5tr tax cuts. The federal budget gap has widened by 23% to $747 bio in the first nine months of the fiscal year.
The bipartisan deal announced last week by Trump was the catalyst for Treasury to increase its borrowings. Interestingly the bond vigilantes that we were all so scared off just a short while ago and caused Bill Clinton so many sleepless nights appear to have retired.
Equities: The S&P 500 fell 0.16% The Dow rose 0.11%. The Vix closed at 12.83 The Stoxx Europe 600 Index was flat.
Currencies: The euro rose 0.2%. The Bloomberg Dollar Spot Index rose 0.1%. The pound fell 1.3%.
Bonds: (as at 4.30pm). The ten-year is trading at 2.063%. The 2-year is trading at 1.856% and the 30-year is at 2.591%. The U.S. curve closed on the day with the following closes 2/10 at 20.3 bp, 2/30 at 72.9 bp and the 10/30 closed at 52.4 bp. The U.S. 5-year closed at 1.844%. The 2/5 spread is now -1.5 bp. The ten-year bund closed at -0.434% and the British gilt closed at 0.652%. The 10-year yen gilt is trading -0.145%.
Commodities: WTI rose 1.5%. Gold rose 0.5%.
Bitcoin is trading around $9,505.
Aussie Market Today.
Stocks to be steady on the day. Expect some profit taking ahead of the FOMC. Be watchful of any news relating to the U.S. China trade negotiations.
Bonds can rally on the day, although they will probably hold steady. The key for the next movement will be just how large the rate cut in the U.S. is and if its 25bp then a sell off is likely. For the moment the market appears poised to make a move its just a matter of which way.
Credit remains on the bid and expect further spread contraction.
At least one more rate cut is now expected.
Credit continues to perform.
Geopolitical risks remain high and still need to be monitored.