Market Talk- October 22, 2018

Asia was a buzz this morning having heard verbal intervention in support of further stimulus and possible future tax cuts. This took the core indices from lower to over 5% higher at one stage. The turnaround in China has fuelled confidence around the world helped by positive Italian news and a sway of M+A activity. The Saudi incident is being edged off of the front pages moving more towards USA pulling out of the nuclear Missile Plan with Russia. Shanghai eventually closed up 4.09% dipping from its intraday highs just into the close. The Hang Seng followed the enthusiasm and closing up 2.32% led by energy, resources and bio-tech. This is a healthy rally, but please bear in mind that the YTD numbers are still very negative and structural changes begin in January. The Nikkei was a zero sum game as index gains were negated by the currency fall. The SENSEX held its stance for most of the day, but was hit in the final hour of trading. Having seen some positive movement recently, the INR is starting to be sold again as money continues to leave the sovereign and looks to remain negative trend. Australia’s ASX did not share in Asia’s optimism as it has more political uncertainty shaking its branches. Both the core index and the A$ lost 0.5% today as lacking support leads to more questions.

Italy credit rating cut Friday by Moody’s, but is being viewed as a “constructive” cut with this the top talking point at this mornings open. The sovereign debt retains its investment grade rating (BAA3 – STABLE), but anymore would have taken it below. The Italian budget is key as the noon deadline was crucial, but early trading saw the 10yr bond rally 13bp (lower yield higher price). However, by the close of European trading all of the early advances were rejected and we close lower on the day. Keep an eye on Italian bank shares – a concern it BTP’s continue their dash for higher yields. BREXIT always prevalent and maybe more so this morning following the Saturday rally in central London. Theresa May addressed Parliament on negotiations to date, but judging by today GBP decline the market is starting to question all of last weeks optimism. Last thing this evening in US trading, Sterling is off nearly 1% on the day and about to challenge the 1.285 support. Worth keeping an eye on the Monthly GMW, as this is signalling attention is required. The CAC and FTSE MIB both closed down 0.6% with IBEX off 1%. The negative mood has returned to European markets, but as always the key to watch is the currency still.

US futures whipsawed as much before cash opened as the cash did once it was open. The DOW and S+P both spent much of their day trading in the red but that was not the case for the NASDAQ. We have already seen much of the earnings from US companies and the numbers on the whole have been supportive of market levels. However, it is not value that is being sort as much as demand for the private sector and the currency itself. It is as much the case – worse happening everywhere else as there is good things happening in the US. The power house of Asia continues to slow with Japan, China, Australia and India all battling their own issues. In Europe BREXIT will be here until next March, Italy obviously knows it own mind and budget, but we are still battling the split between northern and southern Europe. The rush for US funding at year end is likely to be extreme. Emerging markets are in meltdown yet no-one wants to admit it.

Japan 0.14%, US 2’s closed 2.91% (+1bp), US 10’s 3.19% (-1bp), US 30’s 3.38% (u/c), Bunds 0.45% (-1bp), France 0.82% (-1bp), Italy 3.48% (+1bp), Turkey 18.35% (+35bp), Greece 4.28% (-2bp), Portugal 2% (-1bp), Spain 1.69% (-3bp) and Gilts 1.53% (-4bp).

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