Daily Commentary BY THE CURVE TEAM –

Data Data Data

5th of January, 2018

Another night of strong data and another night of equity market records. The USD was weaker as well, keeping with the recent trend. Bond markets however continue to dance to the beat of their own drum.

Earlier in the week it was global manufacturing PMI’s and overnight it was their more important service counterparts that were out. It started in Australia and finished in the US with China, the UK and most of Europe also getting involved. The theme was once again positive with the indices confirming, like their manufacturing counterparts, that activity finished the year on a high note.

That was enough to propel equity markets to to further gains with US markets hitting more new record highs. The USD remained on the back foot, struggling against most others. Meanwhile bond markets are out on their own, with yields once again failing to hold onto the gain and drifting back from their session highs to close lower.

While longer dated interest rates are struggling to hold on to gains, the short continues to grind higher. The strong data is raising expectations that central banks around the globe will continue to walk back from emergence measures that have been in place for the best part of the decade.

This is leaving yield curves much flatter than we have seen in some time. The question is, will long term rates eventually rise, reflecting the more positive outlook? Or is their reluctance telling us something about the prospects for the global economy once the punchbowl of emergency monetary policy settings are taken away?

David Flanagan

Director - Interest Rate Markets