Market Talk- February 9, 2018

Another weak session for Asia, but following the US close that was never going to be a surprise! All core traded heavy throughpout the day but China’s Shanghai index lost most reflecting a 4.05% decline. Financials, insurers and real-estate were pretty much to blame, but we can not rule out todays data release. Although the CPI print was inline the PPI number came in just under the expected 4.4% releasing at 4.3%. Guess, today was not a day to miss your numbers as any excuse was used to liquidate longs ahead of Lunar New Year. The Hang Seng was also heavy ending down 3%, weighed by Hosing, Entertainment and financials. Energy has been heavily reflected all week having seen oil trade from near $70 to break $60 and a 3.5% decline today. . A combination of excuses from higher inventories to strong US Dollar but whatever the reason, it continues to impact sentiment. It was the energy sectors that lead the Nikkei lower also. Eventually closing the day over 500 points lower the decline resulted in a 2.3% fall. ASX and SENSEX both finished around 1% off but both saw currency declines also.

European markets traded heavy all day having opened lower. The DAX did see a couple of positive prints but sadly were not to last. Volatility was spiking again but volume were not so heavy, as we watched market head towards six month lows. Interesting that the Euro Equity Volatility Index (V2TX) is the highest since BREXIT. Many are still blaming the high US jobs number we saw last Friday, but that is probably because they are still denying capital flow is heading towards US Dollars. All core lost another 1 – 1.5% many peripheral markets pretty much in the same ilk. We are starting to see the Europe/US spread tighten and also the spread between core and periphery widen out. The flow has been holding in recently but as the weakness in stocks starts to intensive capital flow will increase.

US session could not be more volatile the initial 300 point rally, then saw a 1000 point swing and then rally back once again. Volumes, as you can imagine, were extremely thin as the market whipped around gapping almost 100 points at a time. Interesting that the VIX settled 12% lower at 28.85. S+P, DOW and NASDAQ were all down around 5% on the week. The front end of the treasury market found a bid, with 2’s closing 9bp lower (yield – higher price), taking back some of the lost curvature. Two dimensional players are optimistic we breached but bounced from the 200 day moving average.

Japan 0.065%, US 2’s 2.04% (-9bp), 10’s 2.81% (-4bp), 30’s 3.13% (-1bp), Bunds 0.74% (-2bp), France 0.98% (-1bp), Italy 2.04% (+6bp), Greece 4.05% (+29bp), Turkey 11.70% (+10bp), Portugal 2.07% (+7bp), Spain 1.47% (+3bp), and Gilts 1.57% (-5bp)