Market Talk- July 20, 2018

Much of todays talk surrounded currencies and the talk of combined intervention! Whether it was or wasn’t is immaterial, but what we did witness was a turnaround in the US Dollar strength against most geographies and at the same time a steepening in core bond markets. These currency bounces helped many markets to recover some lost ground and with the exception of the Nikkei, that was what we saw. The Nikkei was lower in early trade but recovered much by the end of the session. Closing just a little lower (-0.3%) was encouraged by the Yen’s bounce 0.8% to recover much of the weeks losses. The Shanghai and Hang Seng both closed better but the core domestic market gained over 2% with the Yuan set at its weakest in over a year. This trend looks set to continue as the rebalancing appears to only just started. The pace should be steady, but it looks as though the intention remains. SENSEX too recovered some lost ground closing +0.4% today while the INR drifted back to a 68 handle, it too remains weak on the long term. Still has a long way to play in this trend with a weakening currency and a firmer stock indices.

Europe was unsure to follow the Trump FED comments or the currencies and so had to wait for late afternoon trading before it decided. Many now feel the FED will move just to demonstrate its independence, but as we stand today the market anticipates another two hikes this year. Mid afternoon most core were trading heavy, but we did see a healthy recovery into the close. Lots to play for next week with BREXIT probably hitting the headlines again with the Irish boarder probably topping those headlines. GBP has recovered Friday with a near 1% jump but wasn’t enough the stop FTSE from closing lower on the day. The DAX closed down 1% with all sectors adding to the mix. Auto’s, banks and industrials led the decline as capital flow continues to head towards the states. As you can see from below we are starting to see a little movement in the bond market at last. The steepning in the US curve is melting into European yields with peripherals and core affected. Worth keeping an eye on Italian BTP’s as they appear to react more to sensitivity of mood rather than core Bunds or OAT’s.

US stock futures were trading lower earlier in the day, but recovered much once the cash markets opened. Earnings continue to beat expectations and even sentiment appears to be picking-up. We did see new highs in some indices earlier in the week, but as yet await the large caps to make their move. Typical summer trading volumes are not helping identify the trend, but given how the dollar was hit over the past 24hrs there is still lots of cash on the side-lines waiting for the right time to play. Even though we saw small losses to end the day the broader S+P closes firmer again for the third week in a row.

Japan 0.03%, US 2’s closed 2.6% (u/c), 10’s closed 2.89% (+5bp), 30’s 3.03% (+6bp), Bund 0.37% (+4bp), France 0.67% (+5bp), Italy 2.58% (+8bp), Greece 3.83% (+1bp), Turkey 16.67% (-43bp), Portugal 1.76% (+2bp), Spain 1.31% (+4bp) and Gilts 1.23% (+5bp).