Market Talk- March 23, 2018

If you were in any doubt what Asia thinks about the possibility of a trade war, you saw the answer today. All major indices lower with losses between 2% and Japan’s Nikkei -4.5%. The Yen saw the flight to quality and even this evening is trading with a 104 handle. Market looks to have priced-in the worst but there is still a 30 day consultation period before enacted. Expect this uncertainty to last for a couple of weeks yet, so worth keeping a very close eye on the quarter end numbers. Shanghai and Hang Seng gave back 3.5% and 2.5% respectively with the Australian ASX off just 2%! The SENSEX held in reasonably well losing just 1.2% with the INR holding the 65 handle. SENSEX is not far from good support but the INR continues to look vulnerable.

Europe hit hard also and it was the DAX again that felt the brunt of the power. Closing down near 2% its the financials, auto’s and heavy manufacturing sectors where sellers are forced to drop offers to attract volume. DAX is now at levels similar to March and those of last summer, with crucial support for quarter end around the 11,400 level an important level to watch next week. Funny, doesn’t seem that long ago there was only a 2k points between the DAX and DOW (actually, think it was 18 years ago)! The CAC also heavy and pretty much in line whilst the UK’s FTSE demonstrated a little more sturdiness. Mid-session an Italian headline wobbled BTP’s, which also shook other peripherals, but all managed to recover by the close with a little helping hand – so went the rumour.

US (futures) traded weaker in the Asian time zone sympathising with local markets and was down almost 400 points at one stage, but recovered in European trading in-order for cash to open almost unchanged. Having rejected an early recovery we drifted for much of the time but finally rolled-over into the weekend. Closing off 400 points the fear remains weekend headlines and there is not a shortage of where they could appear from! Next week will be interesting to see where we finish for the month but is also quarter end. We have been targeting the week of March 19th for a while and now we know why. Many question, with all the uncertainty, why there is no significant rally in gold. Even todays price action has only taken us back to the $1350 level, still below the $1362 number identified earlier. Treasuries have seen some front-end rebalancing with longs still on offer.

Japan 0.01%, US 2’s closed 2.25% (-4bp), 10’s 2.81% (-3bp), 30’s 3.06% (-1bp), Bunds 0.52% (-2bp), France 0.75% (-2bp), Italy 1.87% (-1bp), Greece 4.34% (+8bp), Turkey 12.33% (+24bp), Portugal 1.70% (-3bp), Spain 1.25% (-2bp), and Gilts 1.44% (u/c).