Most traders this summer are bored
Thus, markets are being ignored
Attention, instead
Is on a man, dead
For years, but still widely abhorred
 
So, even though President Trump
More tariffs on copper did pump
The outrage is such
That nothing else much
Is noticed, not gains nor a slump

 

This is not a political discussion piece but the only story getting any press today, overwhelming the terrible tragedy in Texas from the weekend, is the closing of the Jeffrey Epstein case by the Trump administration.  I will not go into the details here as they are not relevant to our focus, but it certainly has many people irate, although I imagine there are a small number who are relieved.  On the surface, though, it certainly doesn’t seem to be in accord with Trump’s remarkable transparency in all other facets of his governance.  I will leave it at that.

Regarding market issues, while there continue to be ongoing tariff negotiations with numerous countries, nothing new has been completed in that realm in the past several days.  The one new thing is copper, where the president mooted 50% tariffs on the red metal yesterday during a wide-ranging press conference.  See if you can determine when he mentioned this.

Source: tradingeconomics.com

The result is that copper is now trading at new all-time highs, although in fairness, this morning it has slipped back -2.6% from the peak it reached yesterday.  This move has also weighed on gold (-0.3%) and silver (-0.5%), although both those metals remain in longer term uptrends as well.

Away from those stories, perhaps the biggest news is that the Supreme Court overturned a lower court injunction against a Trump executive order from February that was designed to reduce the size of the government.  His cabinet secretaries now have the ability to reduce headcounts as they deem appropriate with estimates of several hundred thousand expected to be let go.  (If I recall correctly, immediately upon entering office Trump offered a buyout for government employees with a generous severance.  I suspect those laid off will not receive the same benefits now).  

I make the connection here as a reduced headcount seems likely to help reduce government spending at the margin, something that has been a key focus of everyone concerned about both inflation and the general growth of government.  Also consider, given the remarkable inefficiency of government processes, any other job these laid off employees take will almost certainly add more value to the economy than they are currently adding.

Otherwise, I’ve got nothing.  Things are just not very interesting right now.  So, let’s recap the overnight session.  Yesterday’s US session was the epitome of dull, with the DJIA the worst performer at just -0.4% and the other two essentially unchanged.  Asian markets saw a modest gain in Tokyo (+0.3%) as investors get used to the new tariffs.  Elsewhere in the region there was no consistency at all with gainers (Korea, Taiwan, Indonesia and Singapore) and laggards (China, Hong Kong, India and Australia).  In other words, there is no pattern here to note.  In Europe, however, gains are universal (DAX +1.0%, CAC +1.15%, IBEX +0.85%) as it appears trade talks are getting close to some sort of agreement.  Again, given the amount of time it has historically taken to reach agreement, the speed with which things are occurring right now is remarkable.  I guess sometimes a stick is needed rather than a carrot.  Lastly in the equity world, US futures at this hour (7:10) are slightly higher, 0.2% or so.

In the bond market, yields, which I pointed out yesterday have risen 20bps in the past week, are on hold this morning with Treasury yields (+1bp) edging higher ahead of today’s 10-year auction.  In Europe, sovereign yields are lower by -1bp across the board which appears to be a simple trading reaction to the recent rise.  JGB yields are also edged higher by 1bp overnight as Japan closes in on its election and comments from a BOJ member indicated they are not likely to hike rates again until March!  Remember, inflation in Japan is 3.6%!

Oil prices continue to edge higher, up 0.5% this morning despite the increased OPEC+ production and the alleged global slowdown in economic activity.  Something about this price action is out of kilter with the narrative and either we are going to see production numbers decline dramatically or the economic data is going to start to show that things are much better than the bears would have you believe.

Finally, the dollar is slightly firmer this morning, +0.2% on the DXY, but continues to trade well below its 50-day moving average and bump up against a very clear trendline lower as per the picture below.

Source: tradingeconomics.com

I am no technician as is obvious by my efforts on the chart, but the general thesis remains intact.  Right now, lower seems to be the direction of least resistance although positioning in the market remains quite net short dollars.  But looking at individual currencies this morning, KRW (-0.5%) is the biggest mover, as concerns over more tariffs on semiconductors undermined investor sentiment there, but other than that, you are hard pressed to find a currency move of 0.2% in either direction.  In essence, like every other market, there is just nothing going on right now.

On the data front, today brings only the EIA oil inventory data where a small draw is expected and the FOMC Minutes at 2:00, although my take is they are pretty stale at this point.  Yesterday saw a surprising decline in Consumer Inflation expectations to 3.0%, despite all the tariff talk, and a decline in Consumer Credit to $5.1B, not a good sign for spending.

As per the above chart, the dollar’s trend remains lower for now.  We will need to see some major changes in policy to alter that trajectory I think, and for now, that seems unlikely.  Everything continues to revolve around what the President says and where he focuses.  If you can anticipate that, good for you.  But this poet hasn’t a clue on the next target.  Stay hedged and nimble.

Good luck

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