About the action today in the gold market, China, and Europe…
Make France Great Again!
Peter Boockvar: While I don’t believe the US stock market was worried whatsoever about the French election in terms of its pricing and recent action and the French CAC as of Friday was only about 2% from a multi year high, it’s clear that we dodged a bullet with the high likelihood of a Macron Presidency. It will be interesting to see how he squares his prior assistance to the Socialist party with his appreciation of business and the desire for lower tax rates. I’m hopeful on the latter but we after all are still talking about France, the bastion of the European social welfare state. MFGA, Make France Great Again!…
For US stocks and what matters most, it will still be all about when and what tax reform looks like and the tightening headwinds this year that will be monetary policy. I’m sorry people but I’m going to keep hammering home my belief that central banks are the biggest risk to markets this year as the monetary punch bowl is slowing being taken away.
What Will Super Mario’s Next Move Be?
With a Macron victory, I look forward to hearing from Mario Draghi on Thursday on when the next taper is. He may or may not give any indication but if he was worried about European politics before the weekend, there goes that and he now has a green light to taper again. German bonds in particular are taking it on the chin and it’s not just their long end. The German 2 yr yield is higher by 9.5 bps to -.70%, matching the highest since late January. The German/French 10 yr yield spread is also back to the late January levels with its sharp narrowing today. Peripheral European bonds are rallying with French oats. I continue to like the euro and can’t stand European sovereigns which are again a huge short after this recent French fear rally.
I think the US stock market has been completely desensitized to the possibility of a government shutdown as we’ve been down this road before and we all know that if the government closes, it will soon reopen. Therefore, move on.
US Treasury yields will continue in the tug of war between soft US data, hopes for tax reform, pretty good overseas data, lower political worries in Europe, now likely higher European yields and less central bank largesse. I’ll stick to my belief that the post Brexit vote lows in yields will never be seen in our lifetimes and that the 2.30-2.60% range in the 10 yr will reestablish itself after the events of yesterday.
About The Action In The Gold Market
While I understand the knee jerk reaction in gold to sell off today, I hope at some point people finally realize that it’s never been a safe haven trade. It’s just a currency that happens to be yellow, weighs more than a piece of paper and happens to be really difficult to get out of the ground. What is more clear is the troubled state of most fiat currencies and the attractiveness of gold against them. I mean even the US dollar index level is no different than where it was two years ago…..more here