We will probably only see one out of four move this week and that one will, of course, be the Federal Reserve. Yes, we have four central banks meeting this week (FED, SNB, BOJ and BOE) but it is only the FED where the market has anticipated a move. Having been talked for weeks we should not see too much excitement when it actually happens. That said we did see US Tech stocks turned negative the end of last week and that is what has been the determining factor as we opened in Asia today. Tech’s led us lower bringing all core markets with them. The only exception to that was the ASX which did manage a small positive close of +0.02%. Hang Seng was the weakest of the core, down 1.2% as large caps tech’s led the way. China continues with its modest tightening via the money markets as it extracts excess leverage out of the system. Another of the top talking points in Asia has been the increased presences of the US navy just off the Korean Peninsula – no one wants to see this kind of concern. Japan’s Machinery Orders fell more than expected (-3.1% against a forecasted -1.3%) but this is a notoriously volatile data release. However, despite this we did start to see weakness in long dated JGB’s.
The equity weakness rolled into Europe with all core under pressure from the opening, with tech sector off almost 4%. Italian banks were again a talking point after comments that they were willing to pull together and assist weaker counterparties. UK’s FTSE held in reasonably well but then the currency was under more pressure again today. The GBP lost 0.8% today on top of the 1.5% it suffered the end of last week following the surprise election result. Theresa May was quoted as being a ‘dead woman walking’ but despite that she continues to fight her corner admirably. In core Europe the DAX, CAC and IBEX all fell around 1% but they were not helped after ECB’s Coeure said in an interview that inflation is not here yet but we must be patient.
US markets were weak from the start as tech again led the way lower. A similar storey to Friday where the only sectors managing to hold-in were Energy, Banks and some Industrials. Will be interesting to watch equity market performance this week following Wednesday move by the FED. There is still a lot of talk surrounding investing in growth as opposed to value as we trade this setback, so it will be interesting to compare the soft data against hard data releases as we go. This should provide some indication as to September (now 24% probability) being in play or not! Seeing a late move in C$ after talk the BOC could raise sooner rather than later.
2’s closed 1.35% (+2bp), 10’s 2.21% (+1bp), 30 2.87% (+2bp), Bund 0.25% (-1bp) which closes the US/Germany spread at +196bp (+2bp). European govy markets better bid following talk of ECB pushing QE into 2019. France 0.59% (-5bp), Italy 2% (-8bp), Turkey 10.17% (-5bp), Portugal 2.96% (-1bp), Spain 1.42% (u/c) and Gilts 0.96% (-5bp).