Having witnessed another strong US close on Friday, Asian markets again responded adding to the last week’s gains. The Hang Seng saw strong demand for the housing sector, which was probably the reason that early declines were reversed providing a +0.3% return for the day. Shanghai closed a little better (+0.5%) on the day, but although positive for much of the day added most of its value in the final hour of trading. Similarly, the SENSEX and ASX returned +0.5% as commodities and currency aided performance. It is always difficult trading conditions when a major core market is closed and that was probably a reason that volumes were down as Japan was closed for national holidays.
Europe was buzzing with talks of new German coalition talks and certainly helped prices if not much else. Many still doubt a constructive outcome for Europe as there are so many variables still undecided, but if this were to materialize then it is a step in the right direction. The DAX and CAC both closed around 0.3% firmer on the day but was not the same for all of the core. The UK’s FTSE finished on the lows of the day (-0.4%) after Theresa May decided on a small cabinet reshuffle. Talk today that Britain is freshly preparing for the possibility of a “No Deal” weighed on stocks in the final hour and is probably only a matter of time before the currency starts to suffer also! If the market does turn against the UK as they start to price this in, then it will become a credit issue and will hit the currency and Gilts.
A rather mixed day for US markets as core recovered from early cash declines. Although the DOW closed lower we did see records set for the S+P and NASDAQ. Because of the uncertainty, we saw fresh buying on the VIX. If this continues at least the market ceases to become a one-way bet! Although we are looking at earnings reports later in the week, we could start to see the rally being questioned if these failed to live up to expectation. Also, at the end of the week, we have some core economic data with Retail Sales and CPI both being watched closely.
2’s closed 1.96% (u/c), 10’s at 2.48% (+1bp), 30’s 2.81% (u/c), Bunds 0.43% (u/c), France 0.78% (-1bp), Italy 1.98% (-1bp), Greece 3.62% (-7bp), Turkey 11.40% (-4bp), Portugal 1.84% (-6bp), Spain 1.47% (-3bp) and Gilts 1.24% (u/c).