Market Talk- May 29, 2018

Asia was relatively well behaved today, weaker obviously after what market activity there was yesterday in Europe, but lets just jump straight to the action. Developments really are happening by the hour in Italy, now with the Five Star Movement calling for the countries President to be impeached. There is a good chance we will see fresh elections called for September, which the market this morning decided could be another shock for the Eurozone. The markets initially priced in the fear of a referendum on the Euro. In extremely quiet trading Monday, the two year BTP (Italian Government Bond) was trading 0.3% and then hit bids to 1% by the close. However, this morning we saw it trade over 2.5%, a rise of 220 basis points from yesterdays lows. Talk was that 10 year Italy traded over 7 points lower (120) before support was evident.

Off of sessions morning lows, confidence appeared to be returning with peripheral spreads tightening back-in and core being offered. However, the US cash equities opened lower with selling pressure exceeding demand. The DOW’s decline tended to lead prices, closely followed by the S+P and then some way back the NASDAQ. Financials have been the weakest sector as concerns over velocity, funding and counterparty risks and possible balance sheet concerns start to mount. It is worth remembering however, that such concerns will be hugely exaggerated in European markets and probably why we saw many bank shares down over 5% on the day. Towards the close we have seen support and some bottom fishing across the indices, but could be on the news the Singapore meeting between US President Trump and North Korea’s Kim Jong Un is back on the cards again.

2yr Italian BTP opened last Friday 25th May at 0.30% and even traded 0.27% yesterday (Monday) morning. The rumours were around yesterday in Europe but the market being so thin, forced yields to just under 1% by the close. From the opening this morning, sellers were everywhere and forced a high print of 2.8%. The close registered 2.738% but will trigger more volatility for tomorrows trading.

Japan 0.03%, US 2’s 2.32% (-16bp), 10’s 2.77% (-16bp), 30’s 2.96% (-13bp), Bunds 0.25% (-15bp), France 0.64% (-6bp), Italy 3.13% (+69bp), Greece 4.68% (+35bp), Turkey 13.51% (-60bp), Portugal 2.13% (+22bp), Spain 1.58% (+14bp) and Gilts 1.19% (-13bp).

DXY was a large benefactor of todays uncertainty and resulted in a 0.75% rally in USD’s. Last seen this evening at 94.81 has seen a 7% bounce from the February lows.