Tuesday, November 6, 2018

Daily Writing

9:21 AM

The U.S. mid-term elections take place today.  The outcome is uncertain but there is a strong possibility that the Democrats retake the house of representatives.  This opens the door for Trump impeachment in 2018.  The markets have not fully priced in a democratic agenda for 2019.

Bond yields reflect the health of a state’s balance sheet.  Is this a fair way to approach government bond yields?  Brazil’s 10-year government bond currently yields more than 10.00%.  Will we see lower yields as newly elected right-wing candidate Jair Bolsonaro’s policies begin to take root in Brazil?  Bolsonaro is widely viewed as a right-wing fascist who will be willing to sacrifice capitalism in favor of dictatorship and “rule of law”[1].  At 0.42% Germany’s balance sheet looks quite “healthy”.

Most Asian bond yields are ridiculously low.  Japanese Government Bonds (JGB’s) currently yield 0.12%.  Isn’t this effectively a negative yield?  Why would anyone buy Japanese bonds?  (No one does apparently).[2]

The price of WTI crude has dropped considerably since the start of October.  What could be the cause of this?  Is Saudi Arabia facing heightened pressure to increase demand after the Khashoggi incident?  What is the impact of newly enacted U.S. sanctions against Iran on global oil prices?

Volatility continues to tick downward, with the CBOE Volatility Index falling below 20.00 for the first time since September 2018.  However, things can change drastically tomorrow following the results of the mid-term election.  Our thinking is that the market does not like surprises, if the market is surprised by the election outcome (i.e. Republican victory in the house race), then we could see a considerable spike higher in volatility.

Yesterday European Union Ministers called on Italy’s populist government on Monday to engage in talks with Brussels on a revised draft budget for 2019, backing the European Commission’s view that the plans violate previous commitments by Rome to shrink the deficit next year.  The populist Italian government does not view the EU’s terms favorably.  What does Italy want to include in its budget that the EU is opposed to?  Italy wants to include three things in its budget that fall outside of EU rules: flat tax, reduced retirement age, and citizens’ income.  In its current form, Italy’s 2019 budget deficit will balloon to 2.4% of GDP, well outside the 0.8% cap mandated by EU authorities.  Things could get ugly here if the issue is not resolved.  We are following the deeper impact on the Euro.

[1] https://www.commondreams.org/news/2018/10/29/after-win-brazilian-fascist-jair-bolsonaro-worlds-capitalists-salivate-over-new

[2] https://www.cnbc.com/2018/04/09/something-strange-is-happening-with-japans-bond-market-hardly-anyone-is-trading-it.html

 

Market Data

Resource Commodities

	November 6, 2018	November 5, 2018	November 2, 2018	November 1, 2018	October 31, 2018
Gold Spot	1230.60	1232.20	1232.55	1218.30	1215.20
Silver	14.610	14.715	14.77	14.38	14.33
Platinum	864.00	NA	NA	NA	NA
Crude(WTI)	63.23	63.49	63.34	65.16	66.35

 

Global Government Bond Yields (10 year)

	November 6, 2018	November 5, 2018	November 2, 2018	November 1, 2018	October 31, 2018
U.S. 10 Year	3.20%	3.19%	3.18%	3.16%	3.15%
Germany	0.42%	NA	NA	NA	NA
Brazil	10.19%	NA	NA	NA	NA
Italy	3.40%	NA	NA	NA	NA
Japan	0.12%	NA	NA	NA	NA

 

 

Major U.S. Indexes

	November 6, 2018	November 5, 2018	November 2, 2018	November 1, 2018	October 30, 2018
VIX	19.84	20.18	19.24	20.96	22.72
DOW	254.52	254.44	254.84	252.42	248.75
S&P 500	273.36	271.89	274.75	271.64	267.77
NASDAQ	7378.25	7356.99	7407.46	7332.72	7161.65

 

Currency Cross Rates

	November 6, 2018	November 5, 2018	November 2, 2018	November 1, 2018	October 31, 2018
USD/JPY	113.2900	113.1600	113.28	112.750	113.240
EUR/USD	1.1407	1.387	1.1385	1.1405	1.1318
AUD/USD	0.7229	0.7204	0.7193	0.7192	0.7086
CHF/USD	0.9964	1.0044	0.9955	0.992	0.993
USD/CNY	6.9166	6.9273	6.8893	6.9346	6.9737
USD Index	96.29	96.45	96.53	96.41	97.13