Market Talk- January 25, 2018

It certainly felt as though Asia was keen to hear what the ECB has in store before making its next move. With most core markets closing weaker many were hoping the ECB would result in their relief. The Nikkei closed down over 1% but then the Yen did appreciate 0.5% in Tokyo trading. As expected, exporters and financials led the move lower even though volumes were not as previous. However, as the day wore-on and having heard from Mario Draghi, the Yen reversed much of that move and was heading north of 109 again. By the close of US trading Yen saw renewed safe-haven status and we played between high 108’s and 109.15 level. The Hang Seng saw a little profit-taking today resulting in a near 1% decline with most of that weakness in the final hour of trading. Shanghai also traded with a negative bias eventually losing -0.3%.

Europe was waiting for the ECB and more importantly his comments concerning the recent Euro strength. During the press conference Mario Draghi kept a tight lip and explained how there are three causes of currency strength – his interpretation. Although not said, the implication was “others” were talking their currency down! That was obviously addressed later in the day and from no other than US President Donal Trump live from Davos. His statement that the US dollar will get stronger and stronger”! This was all the market needed to hear and set currency markets alive. Immediately the Yen traded from 108.50 to 109.60; the GBP traded from 142.75 to 140.80 and the DXY bounced from 88.25 to 89.35. Core European indices all finished lower with the German DAX leading the way closing down -0.9%. Draghi also said he did not see any rise in interest rates in 2018 and also stressed that there is no link between inflation and the asset purchase programme. Also at Davos the UK PM Theresa May addressed the press with Trump and confirmed the two countries have a special relationship. Draghi’s comments also hit core bond yields and so we saw a narrowing of spreads between US/Germany and Core against periphery.

Earnings and continued euphoria sent stocks to fresh highs again today and all before the turn late in the session. We did see the DOW up nearly 200 points at one stage on weaker currency, strong fundamentals and upbeat earnings. Economic Data not as great as had been forecast, but many still looking for strong consumption numbers in Q4; Business investments will be closely watched also. US GDP to released Friday and the FED next week, so still lots to play for.

Japan 0.081%, US 2’s closed 2.08% (u/c), 10’s at 2.62% (-3bp) but did see 2.67% just ahead of Trump comments, 30’s 2.89% (-4bp), Bunds 0.61% (+3bp), France 0.88% (+3bp), Italy 1.95% (+5bp), Greece 3.66% (-1bp), Turkey 11.51% (-13bp), Portugal 1.88% (u/c), Spain 1.40% (+5bp) and UK Gilts 1.42% (+1bp).