Market Talk- August 6, 2018

A quiet start to the week in Asia, but the effects of China’s FX move are Friday is still being felt on core equity markets. The overhang of PBOC’s structural intervention in the off-shore FX markets continued today with the Yuan appreciating even more. The Shanghai exchange almost balanced this move with another decline today of -1.25%, but the Shenzhen is off almost 30% this year. We continue to see the war of words hitting the headlines as US and China openly discuss possibilities almost through the media. Interesting that the Hang Seng finally sees a bounce today adding +0.5% with help from real estate, pharmaceuticals, financials and energy companies. Maybe worth keeping an eye n China 5yr CDS (currently 62.82 +1.4%) especially once the currency comes into play. Initial strong moves in the Nikkei were soon balanced by the close of trading to almost finish the day at unchanged. The Yen appears to have rejected slipping below the 111 handle and not looks to take confidence in the Nikkei’s resolve and so backs away. The 112 handle will be odds-on if the Nikkei decides to follow the DOW. SENSEX rallied +0.35% today whilst the INR depreciated -0.35% today. This trends has been in focus for much of the year and does not look to be changing anytime soon. Commodities helped the ASX to a +0.5% gain, but was weary of a -0.15% depreciation in the A$.

It is August trading volumes, so really not that much happening. However, we do see a few isolated company specific stories, but the general mood is quiet. The one common denominator is the weakness of the Euro against the USD but that can also be qualified looking at GBP too! The DXY trades comfortably above 95.10 and is also making headway against the Asian safe-haven Japanese Yen too! Both the DAX and CAC closed almost unchanged on the day, having lost early gains because of a weak US open. Currency will probably be key to watch here this week and it will be very interesting to see if equities balance the currency move or simply accelerates the cash flow towards the USA.

After an initial weaker opening, retail looks to have started entering the market as the Russell, S+P and NASDAQ turned sentiment around. Still the large caps lag, but probably blamed on summer trading volumes. James Bullard (St Louis FED) claimed investors are eyeing the yield curve’s progressive flattening and fearing an inversion produces recession angst. The Russell’s (+0.65%) lead was soon caught by the NASDAQ (+0.6%) and both finished at the days highs. Facebook up 4% helped the NASDAQ recover early losses. The broader S+P made impressive headway throughout the afternoon, to close up +0.35%. Inflation data towards the end of the week, but todays recovery is a great start to the week.

Japan 0.11%, US 2’s closed 2.65% (u/c), 10’s closed 2.94% (-1bp), 30’s 3.08% (-1bp), Bunds 0.39% (-1bp), France 0.71% (-2bp), Italy 2.90% (-2bp), Greece 3.93% (-9bp), Turkey 18.90% (+40bp) Turkish Lira suffering again today -1.3%, Portugal 1.73% (-3bp), Spain 1.39% (-2bp) and Gilts 1.30% (-2bp).