The cautious trend continued in Asia this morning, despite the late rally in US markets on Friday. The news over the weekend was pessimistic in China (Car Sales release) and the Bavarian election result, but optimistic in the BREXIT negotiations at least; – well, until the markets opened! Shanghai hit levels not seen in four years, as the decline in sentiment and the attempt by PBOC Governor to settle market fears. We did manage to see a positive print in the Shanghai core index just after the open, but that spell was extremely short-lived and a cascade of selling was to return. Closing on the days lows is spreading concerns for the week ahead. The currency remained well behave at just under the 6.92 level, but rumours were – it was being babysat most of the day. Both the Shanghai and the Hang Seng closed off around 1.5% lower on the day. The Nikkei did not even get anywhere close to positive in the day, closing at eight weeks low. Its decline of -1.87% did promote a moderate amount of cash flowing into Yen, even if only for the short term. SENSEX saw a turn mid session as above inflation numbers provided the much needed boost. The SENSEX closed the day up +0.38%.
European markets did not know whether they should be following BREXIT, Italian budget discussions or Asia when opening lower this morning. Eventually, news that Wednesday’s crucial BREXIT negotiations could be positive managed to lift sentiment and markets. The afternoon was constructive as early US weakness was rejected. Last weeks events and volatility are still very much in dealers minds and todays light volume was a reminder. Peripheral debt markets behaved as did currencies and so we await more headlines or US direction. Core markets are still well down on the year with FTSE -9% and the DAX -11%. We really need something positive to turn this around or they risk following Asia’s returns at year end! GBP did rally on the earlier rumours but has given all that back and more! Could very well be a bid the rumour sell the news case for the British Pound.
It was the NASDAQ that had the negative effect on core US indices for much of the day, but even so we did manage a small break from tech. The DOW is seeing some strong foreign inflows and is almost at the point where it leads sentiment. The ETF markets are where they are seeing the major profit-taking focus and that is tending to depress the cash market. Early losses in the day were driven by a less than impressive Retail Sales print (Released +0.1% while expectations were closer to +0.6%). Still lots to play for this week, but today was a reflection that volatility is still with us for a while yet!
Japan 0.13%, US 2’s closed 2.86% (+1bp), US 10’s closed 3.16% (u/c), US 30’s 3.34% (u/c), Bunds
0.5% (u/c), France 0.86% (u/c), Italy 3.54% (-3bp), Turkey 17.80% (-48bp), Greece 4.35% (-1bp), Portugal 1.99% (-4bp), Spain 1.68% (+1bp) and UK Gilts 1.61% (-2bp).