Having seen a strong cash performance in US markets has certainly helped sentiment flowing into Asia this morning. Aiding the +1.4% return seen in the Nikkei today was the Trade data release where the numbers were way better than expected (270bn forecast was released at 641.4bn). Interestingly, the JPY has not seen such volatility remaining with a 113 handle, close to the highest seen for a few days. Shanghai and Hang Seng are quietening down ahead of next weeks holidays but regardless still followed the enthusiasm with around +0.3% return. Much of todays conversations were focused on a Reuters report saying a top MSCI executive questions China’s application when considering the restrictions imposed to limit capital flows out of the country. The CNH did trade a smidgeon weaker around the 6.8350 region but nothing to get too excited about.
Europe joined the fun with strong gains across the board. The DAX and IBEX were the strongest of the core closing around 1.8% firmer with banks and financials leading the way. German confidence (IFO) came in less than forecast at 109.8 against 111.1, so the performance of the DAX on the day was better than dealers expected. UK saw better than expected CBI Trends releasing at 5 against an expected 2 number as GBP put in another strong return. However, with all the uncertainty surrounding the UK’s departure from the EU it may eventually question the value of sterling on the world stage! There maybe a chance of Great Britain being downgraded to just plain Britain! There was hope that the shares of BT would reclaim much of yesterdays losses but sadly that was not to be closing little changed on the day.
We did not have to wait too long today before the stock market made yet more history. Today was finally the work of the DOW as it breached the 20k level. The NASDAQ also set yet another record closing up over 1% on the day. The market is taking advantage of the infrastructure support its sees coming as President Trump continues to sign executive orders. the markets wanted clarity and fulfilled campaign promises and that is exactly what they are getting. Strong corporate profits are complementing this move and as a result we see higher yields in the bond markets. With treasuries touching higher and higher yield it will weigh on primary dealers who are bidding on new supply as we write.
The 5yr note auction was on the softer side of bids as demand takes a look in the mirror. With 5’s knocking on the 2% door and 10’s breaking above the psychological 2.5% this will weigh heavily not just on the long end but also on the European markets. 2’s closed 1.24% (+5bp), 10’s 2.52% (+6bp), Bunds 0.46% (+6bp) closes US/Germany at +206bp (unchanged); Italy 2.09% (+6bp), Greece 6.76% (+8bp), Turkey 11.02% (+21bp), Portugal 3.93% (+11bp) and UK Gilts 1.47% (+7bp).