May 15, 3:00 pm EST
The move in the 10-year yield was the story of the day today. Yields broke back above 3% mark, and moved to a new seven-year high.
That fueled a rally in the dollar. And it put pressure on stocks, for the day.
We’re starting to see more economic data roll in, which should continue building the story of a hotter global economy. And it’s often said that the bond market is smarter than the stock market. There’s probably a good signal to be taken from the bond market that has pushed the 10-year yield back to 3% and beyond (today). It’s a story of better growth and growing price pressures, which finally represents confidence and demand in the economy.
From a data standpoint, we’re already seeing early indications that fiscal stimulus may be catapulting the economy out of the rut of the sub-2% growth and deflationary pressures that we dealt with for the decade following the financial crisis. We’ve had a huge Q1 earnings season. We’ve had a positive surprise in the Q1 growth number. The euro zone economy is growing at 2.5% year-over-year, holding toward the highest levels since the financial crisis. And we’ll get Q1 GDP from Japan tonight.
Another key pillar of Trumponomics has been deregulation. On that note, there’s been plenty of carnage across industries since the financial crisis, but no area has been crushed more by regulation than Wall Street. And under the Trump administration, those regulations are getting slashed.
Among the most damaging for big money center banks has been the banning of proprietary trading. That’s a huge driver of bank profitability that has been gone now for the past eight years. But it looks like it’s coming back. Bloomberg reported this morning that the rewrite of the Volcker Rule would drop the language that has kept the banks from short term trading.
That should create better liquidity in markets (less violent swings). And it should drive better profitability in banks. Will it lead to another financial crisis? For my take on that, here’s a link to my piece from last year: The Real Cause Of The Financial Crisis.
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