Looking at the benchmark US 10-year Treasury bond, the yield has traded in a broad range of 2.50-3.00% since the start of the year. The January/February fears of the US economy overheating and inflation rising drove this yield towards the 3% threshold, with many calling the end to the 30-year bond bull market, which had seen yields come down from double digit levels.
However, a bear market in bonds (yields up/prices down) has failed to fully develop. US inflation remains subdued, interest rate rises via the ‘Fed Funds’ rate remain very gradual. Furthermore, although US and global equities have rebounded from the February sell-off, uncertainty remains i.e. everything from the prospect of global trade wars, to an Italian political and fiscal crisis. In times of uncertainty investors sell stocks and buy bonds.
Similarly with the Germany Bund 10-year yield at 0.42% and the UK at 1.30% any rise in bond yields is proving to be mild in nature!
For the reasons described, global equities remain well above 2018 lows and indeed close to all-time highs but the market is not breaking into new higher ground as global uncertainty and market volatility remains. The Dow Jones Industrial Average is just in positive territory for the year at 25,000. An exception to this is the FANG (Facebook, Apple, Netflix, Google) Index which has just hit a record high with Apple and Amazon leading the push higher.
The UK FTSE 100 index remains very well supported at 7,700 supported by a week Sterling currency (GBP/USD = £1.33 having traded at £1.43 a month or so ago). A weaker pounds means enhanced sterling profits for the global conglomerate companies e.g. BP, Glencore that constitute much of this index.
The main move over the last couple of months has been a rebound in the US Dollar which had previously witnessed a 15 month period of weakness since Donald Trump was elected on the back of only a slow rise in US interest rates and finally the emergence of non-US global economic expansion. The latter is coming into question supporting the ‘greenback’ higher.
Oil prices rose to a four-year high last month, above $80 per barrel, with tension in the Middle East and the production cut agreement between Saudi Arabia and Russia still intact. A signal last week that such cuts could be eased has sent oil back to $75 per barrel but this is still substantially above the $40-$60 range we saw for much of 2017.
S&P 500: 2744
FTSE 100: 7750
Bonds – 10 Year Government Yields
EUR/USD 1.1700 (1 euro buys 1.1700 dollars)
GBP/USD 1.3300 (1 pound buys 1.3300 dollars)
OIL: Brent: 75.00 (dollars per barrel)
GOLD: 1300 (dollars per ounce)
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