Market Talk- September 27, 2018

The FED did not set the pace for Asian trading, Fed Chairman Jerome Powell did in the Q+A afterwards. The comment that all are referring to today was the FED’s inflation outlook. Guess you really have to ask the question, ‘Have they ever got it right’? The set-up for Asia was not great, with confidence on the decline and following a flatter, probably for longer, curve. All core markets traded heavy, but we did see all attempt a small unsuccessful recovery. By the close both the Hang Seng and Shanghai were off around -0.5%. The Nikkei did try but by the close that too was off 1%, as financials and real estate suffered. The SENSEX lost -0.6% with the bigger question being currency concerns. In late trading the Yen is heading towards the 113.50 level and the INR is aagain high 72’s.

European stocks followed the Asian uncertainty at first, but then a surprisingly strong inflation number out of Germany woke the market up. If this was a surprise for Europe, then maybe Jerome Powell spoke too early last night – was how many interpreted events today. The move did support core indices with strong returns of +0.5% for most. Although confidence held for stocks, where it did have a stronger impact was in the currency markets. The USD was bid against almost everything with declines of -0.7% for the Euro, GBP and in Asia on the Yen. Bond markets kept one eye on currency moves but the other on Italian budget headlines. At one stage the 10yr BTP yield hit 2.99%, but was to settle up just +3bp at 2.88% – a sign of how nervous investors are playing things at the moment. As we close Q3 Friday, the mood is very uneasy with many fearing anything could derail this years progress. Emerging markets are suffering but probably due to the every increasing strength of the USD. If todays concerns do materialize and we do see a surprise US inflation number, then the US Dollar will be almost unstoppable!

The rally today was led much of the day by Apple and consequently, the NASDAQ. A gain of +0.7% was encouraging which at one stage saw the DOW up over 150 points. However, much of this was lost by the close whilst attention turned to the US Dollar. Strong gains in the currency are setting the stage for a Q4 run. Trade talks were on a bit of a back foot today with little fresh news but, cannot be ignored and certainly not written off. Talks between the US and Canada are ‘too slow’ apparently but these alleged accusations were later denied. Lots of economic data tomorrow which will set us up for some interesting quarter end closes.

Japan 0.11%, US 2’s closed 2.83% (+1bp), US 10’s closed 3.05% (u/c), US 30’s 3.18% (u/c), Bunds 0.53% (+1bp), France 0.84% (u/c), Italy 2.88% (+3bp), Turkey 17.31% (-48bp), Greece 4% (u/c), Portugal 1.86% (-2bp), Spain 1.50% (-2bp) and UK Gilts 1.60% (+1bp).