Market Talk- December 4, 2018

Most of yesterdays gains were reversed today as early currency performance tended to replace equities. Selling in the Nikkei ahead of year end was somewhat counterbalanced by the Yen’s 1% appreciation. Selling of auto’s, industrials and steel producers weighed on the Nikkei which also led to renewed buying of JGB’s. In late US trading the Yen has backed away from the high print (112.75) and looks comfortable in the low 113’s. Shanghai and the Hang Seng saw similar trading patterns today, both rallying to finish positive, but only in the final hour. Australian All Ord’s lost 1% after the unchanged central bank decision hit financials. The CNY continued its positive move, following the weekends headline, which sees it 1% better now trading around the 6.835 level.

In Europe the main news focus centred on BREXIT and the decision by the ECJ (European Court of Justice) stating that the UK can cancel BREXIT! This was initially good news for Sterling and saw it rally almost 1% to 1.2835. However, sense probably entered the market and realised that this could very well have all counterparties initiating their own exit only to cancel 18months later! Cable and the Euro then turned and was last seen -0.4% lower on the day to the USD. Also, Mark Carney voiced more negative opinion to the MP’s on the Treasury Committee today and was followed by various members of explaining the BOE’s does not take specific FDI into account. On core European indices its worth noting that YTD numbers on most of the major sectors for European indices have been shocking. Auto and financials have been the worst with negative returns of around -20% whilst utilities are a small positive return. In late trading news that the government has lost the first two votes (DUP opposing them) and talk that they need to publish the full legal opinion and not just a precise.

US opened weak and simply fell away. At one stage all core indices were off around 3% and again being led by the tech. That said, financials were not that far behind as they worry about the inverting Treasury yield curve. First we saw 3’s/5’s invert and that gradually worked it way along to 2’s/5’s. The much watched 2’s/10’s is a little under 12bp, but will be much watched during Fridays employment data release. We do have a heavy Bills calendar this week and that is probably not helping the cause and with a shortened trading week is bound to exaggerate volatility. Towards the close all core indices did attempt a bounce, but unfortunately the short week and thin volume has seen more pressure into the close as fears of a slowing economy spreading eventually hits the US.

Japan 0.07%, US 2’s closed 2.80% (-3bp), US 10’s 2.92% (-8bp), US 30’s 3.17% (-12bp), Bunds 0.26% (-4bp), France 0.66% (-3bp), Italy 3.15% (+1bp), Turkey 16.20% (+12bp), Greece 4.20% (+3bp), Portugal 1.80% (u/c), Spain 1.48% (-1bp) and UK Gilts 1.28% (-3bp).