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Trumped Again (Daily Close)

Global Markets Observations: US stocks were mixed with the Nasdaq gaining slightly and other indices falling on Wednesday despite Apple gaining 5% on beating its number. 

World Equity markets were Trumped again by the US President threatening China to double tariffs on USD200bn in an effort to to force Chinese negotiators back to the negotiation table... 

While this precipitated a sharp 2% to 4% equity selloff in China, it also hurt European exporters with investors wondering how long it will take for the US President to lash out on German cars circulating on Fifth avenue again despite the cease fire of the past week. This took the wind out of European shares and in the end of US shares as well which found no solace in what appeared to be the Fed's unaltered plan to further raise rates despite Trump criticism. The Turkish lira fell to fresh lows after the US imposed sanctions on two key Turkish ministers over the detention of a US pastor in Turkey, which by ricochet also led some early weakness in EM currencies more broadly. Erdogan has previously suggested that Brunson could be traded for Fethullah Gulen, an Islamic cleric whom Ankara blames for a 2016 coup attempt by a faction in the Turkish military, Bloomberg reported. The Mexican peso pared its decline however after a report suggested the country is in the final stages of negotiating a deal with the U.S. on rules for cars sold under Nafta. EM stocks closed lower in sync with US and European markets. The dollar was generally stronger yesterday and EURUSD dropped 20 pips to 1.1664 following the FOMC outcome. USDJPY dropped slightly however on risk aversion as equities closed mostly lower.

JGB’s gapped up 7bps after BoJ widened the authorized trading band of JGB’s by 10 bps. Bonds were weak across the board as 10 Y Bunds were hit by the double blow of the BoJ adjustment and of German inflation data showing on Wednesday that as far as Germany is concerned the 2% ECB inflation target has been met and surpassed. The German curve shifted higher and the 2/10 year spread steepened by 2.4bps with the long end underperforming. On Wednesday, Bunds already stood near the bottom of the Z-score report but Bunds closed off their lows as equity markets closed lower. Gold traded lower on dollar strength and the entire complex was driven lower by fears of triple leveraged ETF’s possibly causing unrest not too dissimilar to that caused by ETF’s tracking VIX futures back in January. 

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The bond complex populated the bottom of our Z-score yesterday (see Z-Score report) 

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