Market Talk- September 19th, 2017

Tokyo cash played catch-up today, after yesterdays futures increase, with the Nikkei cash closing almost 2% higher on the day. The Yen continues to play around the mid-high 111’s with important month end numbers being watched closely. With September also being quarter end and the FED decision only hours away, this is likely to set the trend for the next trend. Psychologically the 0.80% figure is a sentiment changer for the A$ and today we drifted slightly above it. However, it is probably not a surprise after the RBA minutes reflected optimism for the future with a caveat being household debt. Both Shanghai and Hang Seng closed weaker as nerves start to appear this close to the FED’s decision. It will be the rhetoric that sways market players as “dot plot” and “taper” key words associated to proceedings. Even the SENSEX, which has had its volatility recently, closed with little change today awaiting the next big theme.

Even though it was a reasonably quiet day for European indices the general mood was positive resulting in all core markets closing positive. The Spanish IBEX closed the best of the bunch up 0.4%, but we did watch the DAX only just barley make it into the black with a +0.2% higher close.
The positive note was helped by yet more US strength as financials contribute to the positivity as the yield curve steepens. The FED will set the closing numbers for the remainder of the week and we shall only hear details of that come Thursday.

The market is not expecting the FED to raise rates this week, but we continue to see markets make new highs day after day. Todays gains were lead by energy, retail and semi-conductors even though the volume was light. The bond market is pricing-in the FED’s next move with a steeper curve and with money leaving the asset. It could be interesting how other central banks take this news, especially the ECB who think they are still in QE mode! Yesterdays positive news for Portuguese credit actually saw the bonds tighten 36 basis points to take the 10yr spread just 14bp apart from US Treasuries! Although markets feel content many dealers are questioning if this is the calm before the storm. We have another five weeks to go before we are out of silly season – best not get too complacent just yet.

2’s closed 1.40% (+1bp), 10’s 2.24% (+1bp), 30’s 2.81% (+1bp), Bunds 0.45% (u/c) closing the spread +179bp (+1bp). France 0.72% (-1bp), Italy 2.03% (-3bp), Greece 5.44% (+6bp), Turkey 10.56% (+9bp), Portugal 2.38% (-1bp), and UK Gilts 1.33% (+3bp)..