Market Talk- December 11, 2018

Following Wall Streets whippy session and especially their strong afternoon rally, many expected Asia to open firm. However, that was not what we saw and probably supports the view that capital is US bound. Australia did open higher but was almost back to unchanged by late morning trading. Core Asian indices are all suffering this year with only the SENSEX and Jakarta even showing any signs of performance. That however, could be explained by this years currency depreciation, as the INR is off over 13% against the USD YTD. The Nikkei did well to hang-on to unchanged levels, but closed down -0.35%. The Yen meanwhile lost another 0.25% and is back in danger of revisiting the 114 handle again. Both the Shanghai and Hang Seng indices managed a small positive, but only after both saw whippy trading conditions.

Europe took heart from Wall Streets rally and even managed to build on that in late trading. However, the US sell-off started following Europe’s close and so we must await Wednesdays trading for that interpretation. Closing up around +1.4% on average, it is reflecting earlier US strength. French OAT’s lost a couple of BP’s earlier on the domestic unrest, which was probably the only reason why Macron offered a hike in the minimum wage. BREXIT is never out of the equation and today we hear that Theresa May is touring Europe in the hope of gaining some support, but judging by Sterling’s performance she is not finding much! Cable is flirting with a 1.24 handle, levels not seen since early 2017. Back at home there was continued speculation of an imminent leadership challenge, but that’s always been on the cards recently. There’s a lot of talk that the Old Lady has been a gentle bid under the Pound, but that’s speculation the market hears. Trends remains lower for both Euro and GBP and could only accelerate in 2019.

Early strength was returned after uncertainty and further talk of European liquidations. The fear of a House shutdown also weighed on stocks, but then a tweet from President Trump of possible positive move on trade tariffs eventually helped restore confidence. The volatility is here for a while yet even as we enter the full final trading week of the year. Stepping back the trend remains capital positive for the US Dollar and US stocks. The year to date returns across the globe highlight the safe-haven and the bid for year end cash (USD) continues to push ahead. Inflation numbers and the FED will direct us into year end. 2/10’s continues to flatten and now the spreads trade just 11bp.

Japan 0.04%, US 2’s closed 2.77% (+5bp), US 10’s closed 2.88% (+2bp), US 30’s 3.13% (-1bp), Bunds 0.23% (-1bp), France 0.71% (+2bp), Turkey 18.03% (+133bp), Greece 4.23% (+2bp), Portugal 1.75% (-3bp), Spain 1.43% (-1bp) and Gilts 1.18% (-1bp).