Deals Done Dirt Cheap!
The US equity market rallied today on the back of Trump’s signing of in excess $100 billion sale of weapons that the Saudis have requested for years but have been denied by previous administrations. Weapons manufacturers surged and makers of aircraft such as Boeing rallied. The Tech sector had a strong rally and Blackstone’s stock surged as a result of Saudi investment in infrastructure. Blackstone has been mandated to invest in and build an infrastructure fund. The Saudi’s will commit some $20 billion.
The bond markets retreated a couple of points today as investors weighed the current level of interest rates and the level of interest expected in Tuesdays 2-year auction. There will be two other auctions this week those being a 5-year and 7-year auctions. Given the current level of rates and lack of political upheavals this week it could be that the auctions will be soft and that is why bonds have retreated. Bond yields in Germany and France also rose today with German rates rising some 3 bp in the ten years and in France their 10-year OAT yield rose 4 bp to close at 0.84%. The 10-year U.S treasury closed at 2.25 up 2 bp and the curve closed at similar levels to the previous day. The 2/10 closed at 96.70, the 10/30 at 65.90 and the 2/30 closed at 162.70. The probability of a hike by the Fed in June is hovering around the 75.1% level. It is interesting to note that Hedge Funds now hold the most amount of bonds and bond contracts since 2007. Hedge Funds appear to have given up on Trump’s agenda which currently is losing steam as the Trump Administration lurches from one dilemma to the next.
Stocks rose 0.5% and the Stoxx fell 0.1%. Stocks in the U.S gained on the back of the Saudi Deal and the Tech sector. Commodities helped the tone as commodities were generally stronger.
Oil climbed 0.5% as a deal between the Saudis and the Iraqis was reached to maintain current oil production targets. Gold rose 0.6%, demand for nickel remains sluggish
The U.S Dollar index shed 0.2% against most G-10 peers, the euro gained 0.2% . Iron ore was steady and so too copper.
The key events to watch this week are the treasury auctions Tuesday, 5-years Wednesday and 7-years Thursday. Trump’s team release their Budget request Tuesday and the fed minutes are released Wednesday. Greece’s bailout programme is being discussed by the Euro Finance Ministers today.
The Aussie Market Today
The Aussie dollar should benefit on the day. The pick-up in commodities and weak USD should assist the Aussie battler. Bonds should be weaker by a couple of points as bonds corrected in Europe and the U.S.
Equities should be stronger on the day as the U.S set a more positive tone moving forward. Watch the news out of Canada re their housing sector issues as that could impact locally, we already have seen S&P downgrade a number of Banks and products domestically pointing towards the Canadian issues.