Market Talk- February 5th, 2018

A busy day all round today from the Nikkei down another 2.5%, DOW futures 350 lower ahead of its open, rates rising, Jerome Powell taking office, Draghi to speak, Germany political uncertainty, BITCOIN losing another 8% now at 7,500 and the Bank of England to meet later in the week. Asia’s weakness is much of the late US selloff on Friday upon the numbers. We saw small caps join the weakness today as Topix Small also fell 2.5% sending volatility to over 20% for the Nikkei. Technology led for much of the day, but it was a day when 93% of shares declined in a very broad based sell-off. Interesting that even though core indices were down over 2.5% the rally into the Yen still only just broke below the 110 handle and JGB’s only 1bp firmer (lower yield). Commodities were also weak which saw the ASX off 1.6%, KOPSI down 1.3% and the Hang Seng off 1%. Shanghai managed a positive close after a good release in the Chinese Service sector showing an expansion pace the fastest in five years.

Following unsettling news over the weekend that coalition negotiations between conservatives and the SPD) had broken down and the equity weakness in Asia was the recipe for a weaker DAX index. The talking heads continue to sprout higher rates as the concern for markets and even the reason for this set back. Interesting o watch the front end of the Bund curve over the next few weeks; 2’s were leading the sell-off this morning (higher yields or I should say – less negative). Gilts have been the weakest as expected, but makes it more concerning is that FTSE and GBP are also being hit. Most of this was accelerated after Downing Street insisted Britain will leave the customs union, but should not be a surprise after recent news of probable free trade deal with China. Core European indices closed between 1 and 2% lower with only Sweden’s OMX and the Athens 20 falling more. Given how the US markets have closed, you can expect more European weakness for Tuesday.

US futures were down around 200 points as the cash market opened, so the only index that was up was the VIX trading last seen at 22.75! Again, it was healthcare, technology and energy that weighed on markets and towards the close this selling accelerated. BITCOIN was again under pressure in US trading hours with a further 5% decline taking prices down a near 15% for the day. Trading late in the day in the mid 6k level accelerated it to a near 20% decline for the start of the week. In the final hour of DOW cash trading we almost touched 24k a decline of 1500 points on the day – Well, I guess panic was expected today! VIX spiked to over 100% to 32.50! A 1000 point drop in the DOW and gold rallies only $5; Hmmm, that’s not much!!! Today was the largest points decline in the history of the DOW. On a brighter note – nice recovery in the DXY.

Japan 0.08%, US 2’s closed 2.05% (-9bp), 10’s 2.74% (-10bp), 30’s 3.02% (-6bp), Bunds 0.73% (-4bp), France 0.99% (-2bp), Italy 2.01% (-3bp), Greece 3.69% (+7bp), Turkey 11.43% (+3bp), Portugal 2.02% (+2bp), Spain 1.45% (-1bp), and Gilts 1.56% (-2bp). European markets closed too early to see the effects.

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