The labor force numbers released on Friday was up about 235k paving the way for the Fed to hike Wednesday this week. After saying that Obama manipulated the jobs numbers Trump is now claiming he is responsible for the jobs numbers and that the numbers are now real. This revelation is very curious. The number is a little slower than expected and so too the rate of change and this is causing some pundits to believe that the Fed may have to revise their expected tightening schedule of an expected three this year to maybe just one more hike. The market has factored in the current hike with the probability of a rate hike at 99%.
The bigger shock over the weekend could perhaps belong to Draghi. Draghi suggested that the easy monetary conditions may be coming to an end. Accordingly 10 year bunds weakened and these are now trading at 0.49% up from this time last week at about 0.33% and Italian bonds added 5 bp and are now trading around 2.36%.
Commodities continued their declines. Oil has now fallen to below $49 a barrel, with WTI trading at $48.49. Copper strengthened because workers at the Escondida Mine have decided to strike.
The outlook looks interesting. On the one hand we have rates due to rise but that may be the end of any rate rises for some time. The market will start to question Trump’s ability to get the economy moving and this becomes even more relevant as the deficit is widening due to lower taxation receipts and an increasing cost of Medicaid. Add increasing military spending and infrastructure spending corporate profits which have been sluggish and weak will need to dramatically improve.
The dollar index trimmed its gains dropping 0.6% with the big winner being the Euro which gained 1.2%.
Merkel looks set to throw the cat amongst the pigeons. The Germans are upset with Trump’s tactics, his view and his Administration’s view on trade and the actions to tax German products unfairly. Merkel is meeting with Trump this week and is set to challenge Trump with reciprocal hikes on US products should his Administration follow through with their threats. Germany sees free trade as an imperative and believes that the U.S. actions break with the WTO Accord.
Aussie Market Today.
U.S. Treasuries staged a slight recovery trading back to 2.57% but dangerously close to Bill Gross’s comments that a long term hold at 2.6% signals the start of the Bear Market for U.S. treasuries. Gross made some comments over the weekend likening the equity market as trading on a sugar high. Bill feels that equity markets are overly optimistic and are trading at unrealistic levels.
For Aussie bonds this means, the Governments could trade a little better but with expectations being that the market is more likely to weaken than strengthen then I expect bonds to be weaker or at least trade from the short side. Equity should be steady to slightly better.