The key weekend headline for all markets was the agreement between China and the USA on a temporary suspension of further trade tariffs. Although this is only for a period of 90-days, it does offer an ease of tension which will be much enjoyed by the markets. Almost all core Asian indices opened around 2% firmer and was coupled with a 1% rally in the CNY, which begs the thought – convenient! However, the mood turns positive and looks to encouraging the risk on approach. Shanghai and Hang Seng both finished the day up around 2.5%, which is a positive start to the final month of the year. It was not the case in India where we saw a decline from the opening bell pushing the SENSEX into negative territory, but the compounding factor was that the currency also lost 1% against the USD. This puts negative YTD returns on the INR at over 10%. The Nikkei opened and held a 1% gain, but the Yen looks to be struggling to hold the 113 handle. Talk in Asia is still that the demand for USD over year end continues to build.
Europe tended to drift from the opening levels and especially once US trading was underway. This seemed more a relief than constructive, but even with that said managed a 1%+ return for the day. The Euro climbed against both USD and the GBP as BREXIT headlines take their toll. In 2018 both the Euro and GBP have fallen against the US Dollar and currently stand around a negative 6% YTD return. Exporters were the leaders this morning and that helped the German DAX outshine them all. Closing with a near 2% gain saw auto manufactures and industrials leading the advance. The unfortunate civil unrest being seen in France has not directly affected the capital markets yet, although we did see the spread between Bunds and OAT’s widened 2bp today. UK Parliament votes on the EU BREXIT deal on December 11th, but as we have five days of parliamentary debate ahead and the official legal opinion the government received will not be published (in full) sets the next couple of weeks up for some market volatility.
US markets hit their highs in early trading, but having rallied last Friday shows who leads the globe. The demand for US Dollars continues and even as Treasury yields decline at the long end the appetite for year end money increases. Despite all indices slipping from their intraday highs, all still closed up around 1%+. Monday returns are added to last weeks 5% for the DOW and brings YTD numbers positive. Adding to this return is the currency appreciation and builds on the USA as a target for 2019 capital flow. There is still a long way to go, not least the next 90 days, but this could well be the start of a Christmas trading period that sees the US benefit due to the lack of alternatives.
Japan 0.07%, US 2’s closed 2.83% (+2bp), US 10’s closed 3% (-1bp), US 30’s 3.29% (-2bp), Bunds 0.30% (-1bp), France 0.69% (+1bp), Italy 3.14% (-7bp), Turkey 16.08% (-8bp), Greece 4.17% (-6bp), Portugal 1.80% (-2bp), Spain 1.49% (-1bp) and UK Gilts 1.31% (-5bp).