Markets were languishing today and much of that was because investors are waiting ’til Wednesday’s inflation number comes out. Market consensus is for a number around 1.7% which is somewhat lower than the Fed’s hoped for 2%. Given that low inflation is supposed to be transitory, a low number will raise many questions and will be one the new Fed Chairman Powell will have to come to grips with.

Bonds on the day staged a slight rally and equities had a rally of sorts.  Apart from inflation, investors will be keen to know what is happening with the Budget Bill, so investors will be waiting ’til: they know. The Bill is becoming a battleground of sorts within the GOP. Sitting GOP house members from the high tax states in both NY and Connecticut appear to be directly in the line of fire from advertisements sponsored by one of the superpac think tanks. The message being we don’t care about constituents, what is important is that taxes are cut. For those living in NY and CT, the tax burden could get a lot higher. For the wealthy billionaires running the advertisements, an easing of taxes significantly improves their lot.

Markets will be watching the outcome of the bill and will be waiting ’til: it is clear what is passed and how the detail will change in order to pass through both Chambers.

Today we had the Californian Teachers Fund suggest they may look to reweight their equity holdings. They are concerned that equities have run so far and that a recession possibly looms. They point to the flattening yield curve. The curve is now about 72 bp between 2/10. However, for the curve to invert which is normally what happens as a precursor to a recession, we would need to see a real shift in sentiment.

The economy is ticking over at 3.3% and that is with employment in excess of pareto. Productivity gains remain steadfastly low. This is the dilemma for the incoming Fed Chair. A change in expectations or a rate hike that was unexpected could cause the economy to slow in which case the yield curve could flatten dramatically if the economy were to stall. So, investors will be waiting ’til?

On a day when markets were relatively quiet, Bitcoin staged a 25% drop. There appears to be no major catalyst other than some initial selling that soured sentiment. Egypt has now become the darling of investors. I guess it’s all good until the Middle East blows up again. Venezuela is looking to meet with bond holders and discuss renegotiating the terms of the bonds.

Apec has now finished and the big winner is China. Trump has successfully positioned the U.S. so that its influence over the region is rapidly diminishing. Tillerson will have his work cut out if the U.S. is to reclaim lost ground. In separate negotiations, both the Philippines and Vietnam negotiated with China directly despite Trump suggesting he could intercede on their behalf. China is rapidly building its influence in the region and it will only be a matter of time before the U.S. loses influence completely. Even Japan and Korea appear to be distancing themselves.

Roy Moore, the sitting GOP Alabama senator, appears to be demonstrating the increasing gulf within the GOP. McConnell wants Moore gone. However, Moore’s main sponsor is Bannon and McConnell is already in Bannon’s sights. This will be interesting, so we will be waiting ’til?


Equities: the S&P 500 rose 0.1%. The Dow was up marginally at 0.07%. The Stoxx 600 fell 0.7%.

Currencies: The euro was flat. The pound fell 0.6%.

Bonds: the 2-year rose 2 points in yield to close at 1.68%. The U.S. 10-year closed at 2.40 %. The 30-year closed at 2.867 % in 2 bp. The curve flattened between 2 and 3 bp depending on the maturities. The 2/10 closed at 71.5, the 2/30 at 117.9 bp and the 10/30 closed at 46.6 bp. The European 10-year benchmark closes were, gilts closed at 1.328%, bunds at 0.413% and OAT’s 0.614 %.

Commodities: Gold rose 0.3% and WTI fell 0.61%.

Aussie Market Today.

Bonds are likely to be slightly better on the day. Trading cues will be largely driven by sentiment ahead of the all-important inflation number in the U.S. released Wednesday (Thursday for Australia).

Credit looks a little pressured but that’s more in the sub investment grade and weak investment grade sectors and that trend looks likely to continue for the time being. China, for example, reacted yesterday to concerns over junk bonds in the U.S. and credit was sold heavily during the day.

Geopolitical tensions are still a concern although tensions appear to have been cowed for the moment.

Equities are likely to take the lead from the U.S. and sell down a little.