With the Pacific G10 Macro Rates Team
Steady as she goes
December rounded off the year in a relatively benign way. US equities kept rallying, whilst the UST 10yr drifted up 14bp from 1.78 to 1.92 and the UST 2-10 curve steepened gradually from 16 to 34 bp.
Aiding the equity rally was the final confirmation (from both sides) that a US-China Phase 1 trade agreement was close and expected to be signed by end of January 2020. This development, along with Democrat nominee Elizabeth Warren (anti Wall Street policies) sinking in the polls, and another robust non-farm payroll of +266k was just what the equity market needed to push on to new highs. Against this price action was a poor ISM and, finally, the indictment of Donald Trump by the House of Representatives. The lack of market reaction to this stage of the impeachment process, foretells the unlikely outcome of the Senate in attaining the supermajority required to convict the President.
With the first phase of the trade deal all but done, impeachment side-lined, a convincing mandate given by voters (via a clear parliamentary majority) to Boris Johnson and his UK government to push on with Brexit and the Fed on hold for the foreseeable future, there was little to upset the December apple cart.
In other markets, after taking rates negative in 2015, the Riksbank took Swedish rates back to zero from -25bp and suggested that they won’t be changed for some time with their concerns focusing on financial stability. The Japanese government approved a 4.4 Trn Yen fiscal package for the inevitable post-Olympic doldrums. RBA and RBNZ didn’t cut, although we think the RBA may be more prone to doing so and small upbeats in European data remain just that, small.
2019 has been a positive year for most if not all investment categories. This was undoubtedly due to the abrupt reversal in the rate tightening and balance sheet reduction policy by the FED. This U turn was also supported by other key central banks.
2020 is very unlikely to be as generous over such a broad spectrum of investments.
For further information on the Pacific G10 Macro Rates team, their experience and strategy please see belowRead the Strategy Information Sheet
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