US Market Commentary on Monday

US Market Commentary on Monday

Markets are worried over the tension mounting between the US and North Korea and then there are French elections due. As if these were not enough, the soft US economic data further dampened the spirits of the investors. The US dollar went down and so did the bond yields.

The data showed that the retail sales numbers have dropped much more than what was expected in March. This led to the yields of 10-year U.S. Treasuries drop down to the lowest level since November, which was at 2.2% on Thursday, the last working day for markets before a long weekend.

Before the presidential election, the yield was somewhere around 1.85%, but then rose to 2.6% riding on Trump’s promises to fuel the economy through his policy stimulus. He has promised to bring about the tax reforms and increase the infrastructure spending. The markets are however now wary that he will struggle to meet his promises given that he failed to get the legislation on the replacement of Obamacare passed. Thus, there is a growing perception that he will not succeed in increasing the fiscal spending or get the tax reforms passed through the Congress. This has led to putting brakes on the Wall Street indices as well as brought down the bond yields.

A senior strategist at Mizuho Securities, Hiroko Iwaki said, “At the moment, it is hard to see any factors that could drive up bond yields. And, compared to U.S. bond yields, which have given up much of their gains after the election, U.S. share prices, having gone through a limited correction, look vulnerable given potential developments in North Korea or the French election.”

On Wednesday, Trump had also made a comment on the US dollar. He said it is getting too strong and that is because people have confidence in him. After his statement, the US dollar dropped 0.7% in a major move. The only statement that markets were relieved to hear was that he said that he does not consider China as a currency manipulator.

The managing director, Kathy Lien at BK Asset Mana said on this statement, “The market had a big reaction, but I think it was an overreaction because (Trump) may just be hedging his bets by making sure that the American public realises he’s not backing down on trade. It’s just that he may not think now is the right time to brand China a currency manipulator.”

The markets are not really sure if Trump really meant what he said about China or is it just another offhand comment.

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