Market Talk- November 26, 2018

It feels as though this is the week that the markets have been building for all year! Having heard late yesterday that the EU 27 had accepted the BREXIT terms it is now up to Parliament to vote on the deal. This vote is expected, though not scheduled, for December 12th so we can expect further Sterling movement based on headlined articles. GBP has traded heavy after the initial rally, but currently plays around low 1.28’s in Asian time zone. The other major topic for this week will be the G20 – or as many have referred to it G2 – meeting with Presidents Trump and Xi discussing future relations in Argentina. The Shanghai index lost early gains and even closed down -0.14%. The Hang Seng however, held onto opening levels for much of the day and even closed with a near 1% return. We saw contrasting movements between the Nikkei and the ASX. In Japan stocks gained +0.75% whilst the currency lost -0.45% and weaker commodity and energy prices weighed on the Australian market. Although financials (Yes Bank -5%) in India were trading heavy today, they had little impact on the SENSEX that managed a 1% return to open the week. Agri-tech and energy provided much of the positive momentum for the market. INR has been relatively well behaved recently which is encouraging participants.

European markets opened on a very positive note following the EU acceptance of the BREXIT deal and also news that the Italian coalition would reconsider their 2019 budget proposal. All core markets gained over 1% with BTP’s and GGB’s government yields both falling 15bp’s. The talk in the UK camp now is that although the deal is voted on Dec 11th, there is a common perception that it fail and they have 21 days to return. Talk is this expected the EU will buckle within this period and offer better terms! Sterling did rally last week on the hyped EU acceptance, but has since come to an abrupt halt with trading light and sporadic. As things stand at the moment, the maths if MP’s were to vote today would be a crushing defeat for the PM. However, one has to question if leaving it an additional two weeks is really in anybody’s best interest! Energy prices have declined 30% over the past two months is being talked as another example of the slowing global economy. German confidence indicator (IFO) was equally disappointing confirming the forecast slowdown.

US futures were already trading higher following the rebounds seen in Asia and the European trading sessions. The FAANGS’s all performed well reversing much of last weeks losses. G20 will be waiting for news on the US/China trade talks, holidays sales numbers are reported to have been better than expected, FED Chairman speaks later in the week and the US Dollar continues to see solid support. All core indices are between 1.5% and 2% firmer today, but as we have witnessed recently – this could change in a heartbeat. Powell’s speech Wednesday should be closely watched as many still believe its the FED that is undermining the stock market.

Japan 0.08%, US 2’s closed 2.83% (+2bp), US 10’s closed 3.07% (+2bp), US 30’s 3.32% (+1bp), Bunds 0.36% (+2bp), France 0.74% (+2bp), Italy 3.26% (-14bp), Turkey 15.95% (-31bp), Greece 4.35% (-17bp), Portugal 1.88% (-5bp), Spain 1.56% (-7bp) and UK Gilts 1.41% (+3bp).

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