Market Talk- May 3rd, 2017

Another mixed session for Asia but with so much on the horizon it really should not be such a surprise. The Nikkei is closed and remains so for the balance of the week, Hong Kong and S. Korea are also closed for holidays. The Yen continued to play in the 112’s drifting to the 112.50 level as Europe opened for business. The ASX lost around 1% with energy and financials weighing on performance. Oil traded heavy throughout the global day pressing on recent lows as inventories continue to be a drag on prices.

Ahead of so much data and events this week we saw another quiet session with conflicting directions. Small positive returns for both the DAX and IBEX (+0.15%) whilst the FTSE and CAC both closed with minor losses. Weaker oil and energy prices also had an impact on Europe but more so on confidence than anything else. Headlines crossing the screens earlier after UK Prime Minister Theresa May accused the EU of threats and election interference. This following last weeks meeting with May and the EU Commission President Jean Claude Junker which the press labelled a disaster. There continues speculation that no deal is better than a bad deal and this has all the indigents to be a messy separation, especially as the settlement has just risen by another €20bn. Late in the day GBP came under some selling pressure but to be fair was after the FED had announced. This weekend we have French elections but Thursday we see ADP ahead of the key NFP release on Friday. Gold has been trading lower with most of the European session last seen down $18 at $1238.

The big news (if you could call it that) was from the FED providing its assessment and an unchanged stance. advising us that they see the slowing they also feel it will change. Banks were weaker initially but then recovered upon the announcement. Core indices recovered early losses to close small down but the DOW did manage a positive return. The NASDAQ remains the index most are discussing having seen such a run in 2017. Facebook is reporting after the close, but as they together with Apple, Amazon, Netflix and Alphabet have such a command over the index it will be eagerly watched. Incidentally, just these five combined equate to around 50% of the NASDAQ as the Mkt Cap weighs so much. Little changed across the board at the US close.

The US treasury market did see a bit of a whippy day but closed with a parallel shift between 2/10’s whilst the demand continued for 30’s. More talk of 50yr issuance, so we just need to focus on yield difference now. In the short end the curve has increased the likelihood of a June hike with a 70% probably being priced-in.
2’s closed 1.29% (+3bp), 10’s 2.32% (+3bp), 30’s 2.97% (-1bp). German 10yr Bund 0.32% (u/c), France 0.80% (-1bp), Italy 2.25% (-4bp), Greece 5.85% (+1bp), Turkey 10.12% (-9bp), Portugal 3.42% (-10bp) and UK Gilt 10yr at 1.07% (-2bp). Obviously, most o the bond market weakness happened after the FED so we will see how European markets react tomorrow.