Market update: Traders hit the brakes seeing the bond sell-off, yields rise globally

30 Jan

by Mihály Tatár

 

Good Morning!

 

  • As forecasted here several times last year, the market slowly becoming aware that the combination of  1. Trump being good at spending 2. central banks are tightening liquidity 3. global growth is very strong –  will turn out to be very bad for bonds, and Monday’s trading was all about selling bonds: The US 10Y yield reached 2.73%, the German 10Y 0.70% (the German 5Y bond yield broke above 0% for the first time since 2015, one wonders what it had done without ECB bond purchases), pushing the whole global bond market with them. (The Hungarian 2021 USD bond to 3% from 2.4% in October, the Russian 2023 bond to 3.52% from 3%, for example). The now undeniable shift in bond markets made investors wary, and keeping in mind the week ahead – Trump’s State of the Union speech, the last Fed meeting with Yellen, the earnings from Microsoft, Facebook, Apple and Exxon, among others – many took some profits on last week’s rally  (SPX -0.67%, DAX -0.12%, Nikkei -1.48%, Shanghai -0.77%). The locking in of profits  – resulting in a stronger Dollar – also affected the currency and commodity  markets (EURUSD 1.2360, GBPUSD 1.40, WTI 64.80, Brent 68.90 USD), with many wondering how long the weak USD – strong stock market and commodities theme can be sustained. (My personal opinion remains unchanged: The ’gigantic infrastructure spending’ expectation is the last driver of this old stock market rally, and then all the good news in the universe have been priced in.) Even the Swiss Franc gained somewhat (EURCHF 1.1550), after gradually depreciating from 1.07 to 1.18 during 2017.

 

  • As Russian-backed peace talks start in Sochi, the situation in Syria turns more chaotic by the day: At least 33 civlians were killed in Syrian airstrikes against rebel-held Idlib and the Kurds – Turkish army fighting has been so intensive that a strategic hill changed hands four times in two days. (Further eroding the SPD’s and the Greens’ pro-immigration position in Germany, the Kurdish-Turkish clashes continued in Europe and according to the Spiegel – not the AfD, mind you – several German imams in Germany called on German Muslims to pray for a ’victorious Turkish offensive and its heroic soldiers’. This is a nice sign of quick integration into the German society.) The US, naturally, refused to pull out its troops from Manbij despite the Turkish threats, and it is hard to avoid the feeling that a proxy war between the US and formally NATO ally Turkey is what comes next.

 

  • Further confirming the market’s suspicion that all the regulatory avalanche since the financial crisis on Western banks and brokerages has been irrelevant at best, untransparent online exchanges are rapidly overtaking speculative trading worldwide. The Coincheck heist – reported yesterday – was a good example, but many noted the rise of Alibaba’s Taobao online marketplace (legendary in Asia as you can buy anything on it from bad debt to Boeing jets and unfinished skyscrapers), which ventured into stock trading lately as well, creating a 1 billion USD bank stock marketplace in a few months.

 

Have a nice day,

Mihály

 

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