After unwavering enthusiasm among most investors about the ability of Donald Trump to spur on US economic growth, markets are now clearly starting to question whether his mooted fiscal stimulus plans — as yet undefined — will actually arrive, yet alone succeed.
US bond yields have been falling, as has the US dollar. Now even US stocks are showing signs of weakness, indicating that some are now starting to question the merits of the Trump reflation trade.
To Chris Weston, chief market strategist at IG Markets in Melbourne, markets should watch the movements in US treasury yields for signs as to whether the Trump rally may be about about to reverse.
“In my opinion, 2.28% on the US 10-year treasury is the key line in the sand, so for those who think the Trump train has derailed should watch moves from here and a break below this level suggests the market is warming to that view,” he said on Friday morning.
It currently trades at 2.36%, having fallen to as low as 2.307% on Thursday.
While the 10-year US treasury yields has been sliding in recent weeks, dropping from 2.64% on December 15, Weston doesn’t think it’ll break below the 2.28% level he’s highlighted.
“The fact gold has rallied from $US1122 to $US1207, the USD index has pulled back 3% and the US 10-year treasury has dropped from 30 basis points, is a function that markets simply don’t go up or down in a straight line and this is a healthy position adjustment from overstretched levels,” he says.