A much welcomed rally the past couple of days to end the traditionally torrid month of October. A finally push today moved indices further away from their recent lows, but remain well down for this month. Optimism remains absent with Novembers planned US/China talks on trade still questionable as being included as part of the discussions! Trade talks have earned the titled cause for these declines, but the data has been weak for a while as today manufacturing growth testifies. This evening we are seeing the Yuan drift weaker yet again and now plays comfortably around the 6.9775 level. Irrespective of reasoning we did manage to see a positive end to the month with all core rallying on the day. The Shanghai managed 1.35% today and with Hang Seng adding 1.6% for the day. The Nikkei managed +2.16% having seen an unchanged BOJ and with added value helping prices into the close. The Yen has been losing momentum for a while now and even trailed when the flight to quality was expected. Trading back with a 113 handle the Yen is starting to look heavy for year end. The INR is back on its downward slope trading back with a 74 handle again. Losing 0.6% today it did however assist to lift the SENSEX for those that are still prepared to put money to work ahead of year end. The SENSEX recovered from negative territory in morning trading and with the help of the currency added 1.63% by the close of the day.
Core European markets rallied following Asian confidence and were all over 1% firmer by the US opening. Interesting that the Euro has been weak all day and has appeared to struggle ever since Sunday vote and Merkel decision on Monday. GBP was also weaker at the open but managed a +0.45% bounce on the news that a BREXIT deal could be unveiled within three weeks. Meanwhile, the decline in the Euro breaching the 1.13 figure is starting to weigh on Sterling’s fun even following better than expected inflation data. Both the FTSE and DAX managed a 1.35% rally whilst the CAC outperformed all other core with a 2.3% rally. Interesting that the FTSE MIB only managed a +0.3% increase whilst the BTP’s tightened 5bp to 3.42%. Still does not look too good for Italy and yet to hear additional news on the budget. Gold has been losing ground the past two days as stocks bounced. This could also be currency depreciation for international investors, but isn’t that impressive a price action – still looks negative.
The last two days have produced a 700 point rally for the DOW, but worth mentioning it did lose 220 points in the last hour of the month. However, we are not out of the woods yet as Q4 is expected to be the volatile period and not just October. All the monthly returns are out there and well publicised, but in all this it is worth keeping an eye on the currency and the strength of the US Dollar. The Euro continues to struggle at the 1.13 level but looks to have survived this attempt. Any bounce would probably be short-lived as the trend is self evident now. ADP report was extremely encouraging for momentum but lets see how Fridays NFP release goes. Treasuries starting to look heavy again which is probably not surprising following the lack of response seen during the equity correction. USD has strengthened 5.5% this year against Euro, GBP and Yuan but has made over 16% against the INR.
Japan 0.12%, US 2’s closed 2.87% (+2bp), US 10’s closed 3.15% (+3bp), US 30’s 3.39% (+3bp), Bunds 0.38% (+1bp), France 0.75% (+1bp), Italy 3.42% (-5bp), Greece 4.19% (-2bp), Turkey 17.73% (+43bp), Portugal 1.86% (-1bp), Spain 1.54% (-2b) and Gilts 1.43% (+3bp).