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6th May 2019

Ooooh, Donald!

MARKET CLOSE:
iTraxx Main

58.3bp, -1.2bp

iTraxx X-Over

251.9bp, -3.7bp

🇩🇪 10 Yr Bund

0.01%, -1bp

iBoxx Corp IG

B+121.9bp, unchanged

iBoxx Corp HY

B+403bp, +3bp

🇺🇸 10 Yr US T-Bond

2.49%, -4bp

🇬🇧 FTSE 100

6144.25, (+1.26%)
🇩🇪 DAX

11657.69, (+1.33%)
🇺🇸 S&P 500

3036.13, (+0.74%)

A bit of fear is back…

Trumpy, Trumpy, Trumpy. Markets have been jolted out of their complacency. One can never tell with him, but a tweet looking like a ploy to accelerate negotiations and forge a solution and borne out of frustration at their current lack of urgency had the markets all in a tizzy. The cynic in us suggests perhaps that timing is good because the markets are riding high in the US, allowing Trump a buffer. Better now than when markets are in the doldrums.

So, threatening higher tariffs just as the Chinese Vice-Premier was supposed to be in Washington made for a difficult start to the week. And it was just going so well before that. The tweet took more than 2% off the Dax earlier in the session, a similar amount in US equity indices and pushed the 10-year benchmark Bund yield back to 0.00%. It’s anyone’s guess as to what will happen next. Primary credit will be closed until we get some colour.

Before that, it was not bad at all! A raft of upbeat economic data will have markets in a positive mood. Equities looked poised even if we were blowing a little hotter on macro and investors trade into the balancing act between the potential for higher market rates against the potential improvements in corporate earnings. The S&P looked like it wants a stab at 3,000 (2,945 currently). Rates hadn’t come off as we might have expected into a potentially more risk-on environment (weaker non-manufacturing ISM) as investors might have flocked away from ultra-safe assets, while credit spreads were tightening as they squeezed into the better tone, amid scant primary issuance over the previous fortnight.

Eurozone inflation accelerated in April, the core rate rising to 1.3% from 1% in March, with consumer prices up by 1.7%. All nudging towards that 2% target area set by the ECB. Fed chairman Powell was less dovish than we might have expected at last week’s FOMC, and those non-farm payroll numbers will have corroborated his thought process. That is, 263k jobs added (180k consensus), unemployment rate down to 3.6% but wage growth stagnated at 3.2% year-on-year.

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