Markets breathed a sigh of relief yesterday, having heard US trade tariffs may well be targeted rather than blanket and this lifted both US and global indices. We saw a 1.5% return from the Hang Seng as energy, resources, financials and real estate sectors all helping to recover ground lost earlier in the week. The core Shanghai also added around +0.5% but then it didn’t retreat that much on the news anyway. The Nikkei was saw a 1%+ firmer market intraday but unfortunately hold that and closed +0.6% better. The Yen trades comfortably with a 106 handle and is ever increasingly bearish as the USD recover against a basket of currencies. On the data front, GDP released stronger than expected at 1.6%, but there were some revisions. BOJ policy meet awaited. The SENSEX finally rallied 1% today having seen losses for the past half-dozen trading days. The government aided the telecom sector via a relief package for debt, but also the confidence seen in peripheral markets certainly helped sentiment. Worth keeping an eye on the INR however, as the GMW is indicating a “New Pattern” is forming and that looks to be INR bearish. ASX rallied +0.7% but the currency lost the same so a zero sum day for international money, not great with the A$ still looking bearish.
Even the DAX, which has been under pressure for a while now, rallied today as all core European indices closing up around 1% across the sphere. Having spent all morning in the red, it took the ECB to declare it plans to normalise monetary policy to see the DAX break higher and close +0.9% higher. Initially, this news helped the rise in the Euro but by the close of US trading had fallen on the day by over one big figure (-0.9%). This move will undoubted confuse the academics and will continue to puzzle them as the currency declines further. GBP was also heavy as it followed the Euro lower in favour of the US Dollar. Energy and Manufacturing were hit hard today as fears of possible US trade war starts to escalate – especially once President Trump referenced Germany in his address this afternoon.
The US session was always going to be about President Trumps trade comments, and even before the remarks, all core indices were higher. Technology stocks have been leading all week and today was no exception. Having heard the news, stocks did decline but unsurprisingly all had been forgiven by the close. The concerns remain growth potential, but given these tariffs will be targeted and no blanket – the markets looks kind of comfortable with that! Tomorrow we will see the job report and that will raise the question of three or four hikes for the year. As we have said many times in the past, if rates are increasing because of a pick-up I the economy, why is that bad new for stocks! After the initial sell-off around the press conference, from there we started the rally. DXY back up above the psychological 90 level again this evening.
Japan 0.06%, US 2’s closed 2.25% (u/c), 10’s 2.86% (-2bp), 30’s 3.13% (-2bp), Bunds 0.64% (-3bp), France 0.87% (-3bp), Italy 1.97% (-7bp), Greece 4.1% (-10bp), Turkey 11.95% (+11bp) Downgraded today to Ba2 Stable, Portugal; 1.79% (-9bp), Spain 1.39% (-5bp), and Gilts 1.47% (-3bp).