Risk-on Trades Falter as Optimism Towards Swift Policy Implementation Fades

The post-election trading trends over the last 4 months expecting increased growth and reduced regulation and taxes lost a bit more steam today.  With recent concerns regarding the Trump administration’s ability to gain Congressional approval for implementation of its policies, global investors have pulled back a portion of their risk-on/reflationary positions.  Led by losses in financial stocks, all three major US stock indices are trading 1%-1.75% lower for the session while Treasurys have rallied, reversing a brief selloff at the open.  Yields/swap rates have declined 1-5 bps across the curve, bringing the yield on the 10-year note near 2.43%.  Gold moved in lockstep with Treasurys with increased demand for safe haven assets, gaining roughly 0.9% on the day.  Conversely, persistent concerns over a supply glut pushed crude oil prices lower again today, as a barrel of WTI fell 1.80% to $47.35.

Overseas, the euro climbed to its highest level of the year against the dollar following France’s first presidential debate yesterday evening.  Independent, centrist candidate Emmanuel Macron helped to alleviate market concerns with his convincing performance last night which was widely regard as a victory over the far-right contender Marine Le Pen.  As a result, there was a heavy flow of unwinding of hedges against the risk of populism controlling French elections, with yields on short-term German notes climbing to their highest levels in six weeks.  

The British pound was another currency on the rise this morning after inflation data in the UK displayed stronger than expected growth for the month of February.  At an annualized pace of 2.3%, inflation topped the Bank of England’s 2% target for the first time since September 2013, increasing considerably from January’s 1.8% rate.  UK core inflation rose 2%, the steepest jump in nearly three years, while food prices moved higher for the first time since 2014.  The sterling added more than 0.7% to trade at $1.245 shortly after the release of the consumer price data.