Market Talk- September 18th, 2017

After Fridays positive move in western markets and especially US markets hitting yet more record highs, Asia responded with equal optimism. Hong Kong’s Hang Seng and the KOPSI performed the best of the crowd with a stunning 1.3% a piece. The Shanghai index traded just 0.3% better but probably reflected the miss in New Home Sales data released earlier today. ASX and the Nikkei were both +0.5% higher on the day and also watched their currencies lose ground against the USD. Interesting that both currency pairs lost around 0.6% to the dollar taking the A$ to mid 0.79 and the Yen to 111.50. Looks to be a trend setting-in with weaker currencies taking domestic assets higher (just the seesaw at play – on an international perspective).

Obviously, Europe followed the positive theme but had the additional boost of the Portugal upgrade. Being upgraded to BBB- is probably a shock to many, especially knowing the 10yr yield was equal to 30yr US treasuries (or 50bp inside US 10’s). You have to question whether it really should be positive news, as it is already distorted by the act of QE! Lets face it – its not stand alone credit is it – guess the game is bigger than that now! Portugal’s stock market gained 1.5% on the news. Core European bourses closed between +0.25 and +0.5% with the UK’s FTSE the best of the bunch. However, it should be mentioned that the GBP lost some of Fridays gains, closing down -0.8% against the USD even as Mark Carney said he sees inflation pushing up. Later this week things could get interesting as we approach the Federal Reserve meeting. Yellen is surely under pressure with the stock market setting record highs almost daily and treasury yields creeping higher.

Watching the increase of treasury yields is supporting US bank stocks and the hope the FED will aid the steepening of the curve. Much of todays talk has been around the FED’s meet and the likely outcome. Having seen the USD index (DXY) trading so weak this year, maybe worth questioning if now we have seen the bottom and the FED actually turns this this around. More intraday highs set today, but it will be extremely interesting to see where we close this month (and quarter) end. DOW sets fifth straight record high.

2’s closed 1.39% (+1bp), 10’s 2.23% (+3bp), 30’s 2.80% (+3bp), Bunds 0.45% (+2bp) closes the spread 1bp wider at +178bp. France 0.73% (+2bp), Italy 2.06% (-1bp), Greece 5.38% (+3bp), Turkey 10.47% (+3bp), Portugal 2.39% (-36bp) and UK Gilts 1.30% (unchanged)

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