Theres a kind of hush

The last month of the year feels like it has started where the previous months left off on a positive note. Just over a month since the election result was announced, the S&P 500 has gained just over 2%, which is not exactly spectacular, but positive. The Russell 2000 smaller-cap index had an initial jump but has somewhat stalled in the past few weeks. The tech index continues to be loved as it would appear investors continue to ignore valuations and instead chase future growth expectations.

There appears to be a certain calmness to Trump’s re-election for capital markets. Two-year US treasury yields spiked on Trump’s election and are now back to where they were before his return. That would suggest interest rate expectations have not changed that much. The threat that Trump’s proposed tariffs could lead to a spike in inflation is not reflected in the 5-year forward inflation expectations, which have fallen from around 2.4% in late October to just over 2% at present. That probably will not go unnoticed by the Fed when deciding what to do with interest rates in the coming couple of weeks and into early next year. Just as the Vix index has fallen sharply in the past month, so has the MOVE index, which is the bond market equivalent. The dollar has rallied, but it’s been on an upward trend most of the year, or maybe most other currencies have been on a downward trend.

Later today, we get a raft of US employment data, which has the potential to cause some volatility in US markets, if only briefly. Several strategists, including BCA’s Peter Berezin, point to the weakening labour market as a sign that the US economy may not be as strong as we all believe. In October, a measly 12000 jobs were created due to one-off factors, strikes, and hurricanes. The number in November is expected to bounce back to between 200,000 and 250,000.

Bloomberg’s John Authers has been covering what’s been happening in France in the past week, as Mr Barnier was booted out this week. There was not much on his ousting; the fun happened leading up to the event. I was asked if one should look at French bonds. You only pick up about 80 basis points relative to German bonds in additional yield, which is hardly a Greece-like situation in 2012. By buying overseas bonds, you also take on the currency exposure of that country. What was interesting, I thought anyway, in USD dollar terms, is that European equities did not entirely regain their levels before the crash of 2007. Just an aside.