A mixed session in Asia today, probably following the last minute sell-off seen in the US markets. Although most markets opened positive, Chinese indices could not join the party. The domestic data was mixed solid a consumer inflation release, but that was off-set by poor producer inflation. Viewed as negative forward looking data the news had a cooling effect on sentiment. Shanghai took the brunt of the selling declining nearly 1% and finishing at the days lows. There is still a lot of market talk with concerns over local government debt, and that’s another reason why China continues to lag. Positive data (low trade deficit) helped lift confidence in the SENSEX today resulting in a near 1% rally. The INR has also find renewed strength, probably assisted by weaker energy prices, and is seen late this evening back at 73.30. In Japan the Nikkei had a very solid day, but the rally only started in the later half of afternoon training. Gains in the Nikkei were broad based from across the sphere, but with particular influence gained fro m industrials, energy and telecommunications.
In Europe many wonder if today is the day when countries finally decide to stand up to the Brussels in defence of their own sovereignty. The Italian coalition politicians presented next years budget and are now awaiting the EU’s response. Although the 2.4% of GDP is within the permitted 3%, it is way off of the previous 1.8% proposal. The high debt to GDP ratio of 130% is a clear concern for the EU. Other talks today were concerns over possible rising tensions resulting from the Khashoggi incident and surrounding repercussions on the oil price. US markets have helped Europe into the close, with the markets interpreting smooth BREXIT and a softening Italian budget, peripheral markets closed over 2% higher on the day. Both DAX and CAC gained 1.5% while the UK’s FTSE was left a little behind but saw its currency rally (+0.4%).
Earnings are proving to be the helping-hand for US equity markets just at the time when hard data was required. The rally today was very broad with all indices adding at least 2.15% with the NASDAQ again leading the way (+2.9%). The two big banks that reported at the open helped sentiment, with Goldman and Morgan Stanley up +2.5% and 5.5% respectively. Sounds good, but you do have to remember that even with todays gains, MS remains 12% down on the year. Tomorrow we have FED Minutes released and worth remembering that even today we remain below the Dot Plot. Markets are not pricing in all the hikes for 2019, so we could well see a little movement upon tomorrows release. Interesting that given the rally seen in stocks the bond market traded higher (price / lower yield) questioning that relationship yet again! Maybe the market is starting to accept that stocks rally with rising rates!
Japan 0.14%, US 2’s closed 2.86% (u/c), US 10’s 3.15% (-1bp), US 30’s 3.33% (-1bp), Bunds 0.49% (-1bp), France 0.84% (-2bp), Italy 3.45% (-9bp), Turkey 17.80 (Unchanged having traded 18.13% – 17.72% range), Greece 4.23% (-12bp), Portugal 1.93% (-6bp), Spain 1.64% (-4bp) and Gilts 1.61% (u/c).