Market Talk- October 17, 2018

We opened the day with Asia playing catch-up. All core markets opened firmer, but then the decline returned and we questioned if markets would even close up! Shanghai was a classic example of that today having opened strong. However, with an hour of trading was down around 2%, but then a last time buying spree closed it up +0.6% lifting it from its 52 week low. The index continues to suffer on the uncertainty of US trade talks, but the market is off 22% YTD, so you have to question the bigger picture here. The Hang Seng painted a similar picture today, opening strong but closing weak. It too is down for the year (-15%) and sees the money leaving the market on any rally. The Nikkei breaks this mould closing this evening higher on the day and the year. Not much to be fair – actually only just positive (+0.35%) – but then the currency is off a similar amount on the year. SENSEX opened strong and remained heavy throughout the day. Closing down a little over 1% which brings the YTD return to just +2%. Given that the currency has declined YTD 15% it is no wonder international investors are taking money back home. The ASX and the Nikkei were best in class closing up 1.2%, but seeing their respective currencies both decline. This looks to be the start towards year end, especially as demand for year end Dollars accelerates.

Uncertainty, the lack of supportive data, BREXIT “No Deal” still on the cards, Italian budget debate and cash flow towards the States are all combining to send stocks and the currency lower. European Car Sales for September dropped a whopping 23% a surprise after the August gains. This following BMW’s profit warning last month has had a negative effect on auto shares which are helping to weigh on the DAX. Both the DAX and CAC finished the day off -0.5%, but that even as the Euro trades at its days low (sub 1.1500). The FTSE MIB lost some of yesterdays gains, closing down 1.5% with the Spanish IBEX also falling a similar percentage. In late US news the announcement by Theresa May, UK Prime Minister, of a possible delay by extending the transition period will not be welcomed by markets. This is purely kicking the can down the road and invites suspicion and scepticism which markets do not like and this is being reflected as Sterling and the Euro remain heavy in late trading.

US equities traded heavy initially, as it looked like ETF’s were driving the selling, but only whilst Dealers awaited the FED. We did manage to turn the markets off of their morning lows as we approached the Minutes release and upon little new information succeeded in just hitting Treasuries with stocks almost unchanged. With the rise in long term bonds, the banking stocks found buyers, even as they underperform utilities. At the close the bonds continue drifting, as the Dollar breaks stronger. Worth keeping an eye on the real estate market as it continues its decline following poor homes sales, lower Starts, combined with falling mortgage applications and all when rates are starting to rise.

Japan 0.15%, US 2’s closed 2.89% (+3bp), US 10’s 3.20% (+5bp), US 30’s 3.37% (+4bp), Bunds 0.46% (-3bp), France 0.81% (-3bp), Italy 3.54% (+9bp), Turkey 17.37% (-43bp), Greece 4.28% (+5bp), Portugal 1.94% (+1bp), Spain 1.64% (u/c) and Gilts 1.57% (-4bp).
We need to see the opening tomorrow to see how European bonds react to the rising Treasury yields.