What Next?

Today was a curious day. First we had the amazing comeback by the Patriots, and that’s a bad omen for equity markets. The Falcons should have won!

Markets were somewhat mixed. Equities were barely anywhere ending slightly down. Bonds were the movers of the day. The 10 year US treasury fell about 5 bp and that seemed to be on the back of European uncertainty caused by the French election and Trump. The bond markets are appearing to be changing direction and challenging Trump to deliver.

Uncertainty in policies is starting to unsettle markets or at least make them think. The latest job numbers highlight why Trump won but equally what his nemesis may be. Aging population, older workers lacking the right skills and no wages gains would suggest that getting to 3-4% growth may be pie in the sky stuff. Business needs certainty and it’s not seeing that at present.

On the day I saw some numbers around how Trump’s tariffs could affect the purchase of a car in the USA. Ford is the big winner, the Trump tariff would mean that only about $250 would need to be passed onto the consumer n most cars as Ford manufactures most of its cars in the USA. Jaguar however which is a fully imported car would see about $15k per car. That means for the Jaguar SUV the car us suddenly catapulted into a much more elite division and that will affect sales. Sales of Jaguar over the last year have been very impressive.

The Retail Sector is causing concern. First Macy’s is showing signs of stress and is a likely target of the Canadian Hudson Bay Group and now Sears appears to be struggling. Corporate profits whilst up this quarter are still behind the growth rate required to justify current levels. Earnings are currently around 1.5% up from an average decline by 2.5%. Inflation is seen as the key to earnings growth, however you want inflation that is wage related not cost related. In other words you don’t want wages falling and costs increasing.

Commodities were mixed. Softs were better, metals were up, oil was down after the US boosted the rig count to the highest since 2015 (Baker Hughes Inc). The dollar spot index was slightly better and the Euro slipped.

There are two worrying signals at present that appear to be pointing to headwinds. Logistics companies such as UPS and Fedex are struggling and seeing falling revenues. Media advertising also appears to be falling and as a rule of thumb, increasing advertising typically means strong economies.

Aussie Market Today.

The equity market should be stronger today based on commodity demand. Bank stocks are undergoing a renaissance in the US and this bodes well for Australia. Bonds will be stronger on the back of gains made by US treasuries.  The move however will be muted.