Thursday was a quiet day in markets across all asset classes. The market was doing its best to digest the latest economic and political news. In the early hours of Thursday morning, the story from Vietnam was not what the market had hoped for as the summit between President Trump and North Korean leader Kim Jong Un ended suddenly. The US President walked away from the negotiating table as the North Koreans were not willing to agree to total nuclear disarmament. Instead, they wanted to trade giving up some of their nukes for complete removal of sanctions. The position of North Korea was nothing new, as Chairman Kim’s father and grandfather both had a long history of gaining concessions from the US without giving up much of anything. However, over the past year, the warming relationship between the leaders of the US and North Korea had provided a growing hope that the two sides could agree on a deal that would make the world a safer place.
Meanwhile, the failure and disappointment raised concerns that the ongoing trade negotiations between the US and China could go the same way over the coming weeks. President Trump walked away from the summit in Vietnam, and he could easily do the same when it comes to a trade deal with China. While President Trump delayed new tariffs scheduled for March 1, any breakdown in the current negotiations could cause the trade dispute to escalate. Thursday’s events in Vietnam were a reminder to markets not to get overly optimistic over the potential for a wide-ranging and unprecedented trade deal between the US and China.
Stocks did not move much in Thursday’s trading, and the dollar index hardly moved. The price of crude oil edged just marginally higher while gold and silver continued to correct to the downside. At the same time, agricultural commodities prices continued to slide.
On Thursday morning, the US released fourth-quarter GDP data which showed that the economy grew more than analyst expectations at 2.2%. The number came in at 2.6%, and while it was higher than the consensus, it was lower than the previous two quarters. However, in a sign that markets are concerned that the data could be enough to cause the US Fed to reconsider their pause when it comes to rising interest rates, bond prices fell over the past two sessions.
As the daily chart shows, the US 30-Year Treasury Bond put in a bearish reversal on February 27 when it rose to a higher high than the previous session and closed below the prior day’s low. The GDP data on Thursday took the price of the bond to an even lower level.
Bonds compete with stocks for investment capital. If the decline in the bond market on Wednesday and Thursday is an emerging trend, we could see a return to the volatility we witnessed in the stock market during the final three months of 2018. Any disappointing news on the trade front with China could only exacerbate problems for all markets, and cause price variance to return. Meanwhile, we are now less than one month away from the deadline for a hard Brexit. Fasten your seat belts in markets; we could be in for a wild ride over the coming days and weeks.