DAY OF THE LONG KNIVES Markets cheer Bannon’s departure

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When news of Bannon’s departure from the White House broke, the trading floor of the NYSE erupted in joy with cheering and clapping. The equity market staged a minor recovery. The bond market retraced its steps on the day to finish marginally better from the previous day. Such is the disdain many people felt for who was once Trump’s right-hand man for policy and voter messaging. It would appear Bannon fell from grace due to his constant nationalist stance, his divisive nature and because of his frank interview to a slight left-wing magazine.

On the day, Cohn was rumoured to have resigned while Mnuchin is under fire as Trump’s comments were seen as anti-semitic. Interestingly, two prominent religious conservatives have come out in support of Trump’s comments. Jerry Falwell and Former Arkansas Governor Huckabee were the two prominent religious supporters. Interestingly, over the last few years the alt-right movement has been responsible for 320 deaths globally caused by their followers and the alt-left group that was there in response to the neo-Nazis and for the conservatives vilify are responsible for no deaths. (Source ABC Australia)

NAFTA negotiators wrapped up their first round of discussions. Part of the discussions are to update the existing agreement and to form some form of conceptual negotiations for the future. It appears though that not all cards are on the table. The U.S. has not announced its proposed targets for boosting content in the Automotive sector. The talks will move to Canada in September before returning to the U.S.

Noteworthy, over the last couple of days, we have had several comments from Fed Governors. Neel Kashkari of the Minneapolis Fed suggested that the Fed had to consider against bumping into the debt ceiling as the Fed looks to unwind its bond portfolio. The U.S. Government is bumping into the debt ceiling and therefore there is the possibility it won’t be able to pay its bills in October. In addition, Robert Kaplan of the Dallas Fed continues to be vocal about the Fed not being able to hike rates until inflation creeps to 2%. More details could be released when the Central Bankers meet in Jackson Hole this coming weekend.

Recap

Equity markets were marginally weaker on the day. The Stoxx 600 fell 0.7%. The S&P fell 0.2% paring back larger losses on the day post Bannon’s departure. The Dow was down 0.35%.

The Bloomberg Dollar Spot Index fell 0.3%, the euro gained 0.4% and the yen rose 0.4%

The U.S. 10-year bond fell 1bpto close at 2.19%, the 30-year tightened 2 bp to close at 2.774% and the curve flattened marginally between 2 and 30 years. The curve closed 2/10 at 88.3bp, the 2/30 closed at 146.5bp and 10/30 closed 58.2bp. European bonds closed better with the benchmark 10-year closing at 1.08% for gilts, 0.705% OAT, and bunds at 0.408%. Demand for highly rated euro zone bonds increased Friday as equities fell on Friday as a result of a lack of confidence in Trump’s agenda.

Commodities were mixed. WTI rose 3.3% on the basis of lower rig counts and falling crude inventory in the U.S.

us crude oil inventories and production

Gold fell 0.1%. Anglo-American is said to be swimming against the tide by placing its bet on hydrogen powered cars thus taking advantage of its platinum mines should the bet payoff. Coal mines in Shanxi were closed because of safety checks. Iron ore futures rose for an eighth week as demand for high grade ore surged. Iron ore futures gained some 7% Friday.

Aussie Market Today

Today would appear to be a risk off day. I expect that bonds to continue the rally and that equities will follow the lead from offshore and be sold. Furthermore, the currency should be stronger as the USD slips and demand for commodities continues.

The Aussie markets may be subdued as many mull over the disastrous performance by the woeful Wallabies.  Well done the AB’s and the Wallabies need to think about how they close the gaps.

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