Market Talk- May 31, 2017

Another mixed session for core Asia but we did see a slight pick-up for China following better than expected PMI report. The consensus was looking for a 51 and the actual release came in at 51.2%. Shanghai closed slightly better at +0.3% and proved to be the best performing core market. A good start after the long weekend but was also a hot topic after the overnight money cost increased. This had a direct impact on the currency and we saw short positions covered. The Nikkei closed small lower after the disappointing Industrial Data missed forecasts (+4% against an expected 4.3%). The JPY continues to see safe-haven demand and today traded close to the 110.50 level.

The CAC was again the worst performer of the European core as Energy, Miners and Financials led the decline. Euro – area inflation released lower than market estimates at 1.4% which is the lowest number for this year – which will side with Draghi’s call for a never ending support mechanism. Employment number also a disappointment releasing at 9.3% lowest in over seven years. The GBP had a volatile day having hit lows (1.2775) in the morning after talks of a hung parliament were rumoured, following the ‘Yougov’ pole release. However, these levels proved to be the low and a rally into the 1.28’s followed in afternoon trading as month end book squaring seemed to flatten many books. The DAX closed small better on the day contrary to Deutsche Bank declining 3.5%.

Stocks were reasonably quiet and in a tight range but we saw continued weakness for Financials, this time led by Goldman. Their stock declined by around 3.3% today as much news was made of their purchases of Venezuela Bonds; JP Morgan stock declined just 2% in comparison. All core US indices closed small lower but have set good gains for the month end. Tech (+20%) and Utilities (+10%) have been star performers so far this year with Financials and Energy lagging in performance. We have a host of figures again tomorrow so more data for hike guidance. Still the market is pricing June and Q3 (probably Sept) with the jury out as to whether they go December of Jan’18.

2’s closed unchanged at 1.28%, 10’s 2.20% (-1bp), 30’s at 2.86% (-2bp), Germany 0.30% (+1bp) which closes the US/Bund spread at +190bp. France 0.73% (+1bp), Italy 2.18% (+2bp), Greece 5.95% (+3bp), Turkey 10.18% (-10bp), Portugal 3.01% (-6bp), Gilts 1.04% (+5bp)

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