Market Talk- February 15, 2018

Most of the talk in Asia centred around the strength of the Yen as it rose to a 15 month high. This hurt exporters but the effects on the Nikkei was negligible as the index rose 1.5% on the day. Unfortunately, the economic data release failed to support the market euphoria as we saw December core manufacturing numbers fall way more than consensus had forecast. The Hang Seng was open today and contributed its own 2% rally to the Asian performance. We are still seeing financials, commerce and real-estate aid these rallies with CCB actually adding a near 5% today. Shanghai and KOPSI of the core were closed for the holidays, with Hong Kong joining them tomorrow. Was nice to see a bounce in some of the commodities also today, especially oil up 1.5%.

Nice to see the DAX manage another positive close today after some pretty recent declines. The index closed marginally better but having seen a 10% decline in as many days, it was encouraging to see back to back gains, even if the days gains were lost in the final hour. The CAC was the stand-out performer with another 1.1% advance, but was probably mostly down to just one stock, Airbus and its 10% jump on better earnings release. Much of the talk today focused on Germany and discussions around the proposed increased government spending. Bunds have drifted weaker recently but are so widely held that any price or spread decline is likely to be measured at best.

US markets were almost a stop-start approach today after an early rally was rejected, and we traded negative. You could see the nerves in the market after this event and even into the close volumes were light. Having seen the core markets lose almost 10% in a week, its interesting to see how this pullback has not boosted trading. Back in January with the DOW north of 26600 everyone wished they had bought last November; we get back there and no one wants to buy – guess that’s just market psychology! Healthy close for todays session, with 1%+ gains on all core. In the rates sphere we are back to the flattening mode with 2’s creeping higher and higher and the long end rejecting the 3% barrier for now.

Japan 0.06%, US 2’s closed 2.18% (+1bp), 10’s 2.89% (-2bp), 30’s 3.15% (-3bp), Bunds 0.77% (+1bp), France 1.02% (+2bp), Italy 2.06% (u/c), Greece 4.34% (-5bp), Turkey 11.69% (-15bp), Portugal 2.02% (-3bp), Spain 1.50% (u/c) and Gilts 1.64% (u/c).

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