Market Talk – September 3rd, 2018

Always a quiet day when a major market is closed and we saw that today. Asia traded weak all day as it responded to news that the US and Canada are yet to reach a trade agreement despite rumours they were close last week. Of course, markets hate uncertainty and this throws open the question of US-China negotiations. This and further negative economic data (PMI) resulted in renewed selling pressure for both Shanghai (-0.2%), but more so the exporting Hang Seng (-0.65%). However, unlike the HSI Shanghai did manage an impressive rally into the close and sets sentiment up for the Tuesday open. The Nikkei flat-lined at lower prices for much of the day. Closing down -0.7% and also in thin volume, even with a focus on a mildly weaker Yen (111.15 last), prices tended to trade heavy. We saw a different pattern in the SENSEX even though it closed further down at -0.9%. Until mid-afternoon the index was holding in well, but in the final hour the selling pressure came. Emerging markets in general are seeing liquidations and it is turning into a battle between the currency and the index/bonds. The USD continues to demonstrate its resilience.

The only core index that closed with meaningful gains today was the UK’s FTSE and that was only because the decline in Sterling. BREXIT headlines, never really out of the news, were front and centre again after Boris Johnson criticised Theresa May’s Chequers Plan. Sterling was weak from the open and lost 100 points at its weakest today. A plan such as this simply hands victory to the EU he claimed. The DAX suffered as auto’s were sold, and again dealers were highlighting US trade tariff fears. Turkey bonds recovered early losses as headlines that intervention would support values. However, this was not the same for the Lira which lost another 1.6% against the USD today (last seen 6.65). US markets obviously closed for Labour Day, but we have EU growth number, US employment, Swedish voting and Italian budget talks this week.

Japan 0.12%, US 2’s closed 2.63%, US 10’s 2.86%, US 30’s 3.02%, Bunds 0.33% (+1bp), France 0.69% (+1bp), Italy 3.15% (-7bp), Turkey 20.37% (-43bp), Greece 4.39% (+6bp), Portugal 1.89% (-2bp), Spain 1.44% (-2bp) and UK Gilts 1.40% (-2bp).