"Experts often possess more data than judgement" Colin Powell

American markets took a bit of a wobble on Wednesday evening, as there appeared to be a move to take risk of the table. The 10-year US treasury which a few weeks ago seemed destined to break 3%, traded closer to 2.8% on Wednesday evening. We flagged the idea a few days ago as to whether the Bitcoin could be an indicator of risk appetite. If that is the case it too has taken quite a knock recently, we shall see if this is a further portent to more volatility in other asset classes. Trading Bitcoins is definitely not for widows and orphans, though with the volatility, it may create one or two as the stress takes its toll.

We have expressed the view that the greater risk for equities may not be rising bond yields but falling ones, as this would indicate concerns that the US economy may not be growing as fast as had been forecast. The Atlanta Fed forecasting that the US economy may only have grown at 1.9% in the first quarter will have had investors heading for the bond market. Weaker than expected retail sales also would have impacted sentiment in bonds and equities.

Relationships with Russia are deteriorating across the globe. After the terrible events in Salisbury and the reaction form the UK government, the US accused Russia on Thursday of cyber attacks as it revealed new sanctions. This weekend Russia goes to the polls to vote for new President, or to vote to keep the same one more than likely. The result of this election may be even more of a certainty than Manchester City winning the Premier League this season. One of the accusations made by the US government is that Russia tried to get into the energy grid. So far one gets the sense that Russian tensions does not appear to impact market sentiment a great deal, at some point, depending on how relationships deteriorate it may well do.

Investors seem to focus on the other side of the interest rate coin on Thursday as equity markets regained its poise. Having convinced themselves a few weeks ago that the Fed would raise interest rates 4 times this year, the recent weakness in data suggests that is being revised back down to three. Mario Draghi, speaking on Wednesday reiterated the view that interest rates in Europe will remain low “for a long time”.

Maybe Goldilocks porridge remains close to the right temperature. Modest growth, inflation remaining close to or just below target and hence monetary policy can be patient and prudent as Mario quoted on Wednesday.

Posted on March 15, 2018 .