Market Talk – February 11, 2019

Asia:

Foundation Day is a day designed to mark the celebration of the founding of a nation. In the case of Japan, this is for the mythological foundation of Japan and the accession of its first Emperor Jimmu. For this occasion, the markets were closed in Japan. Therefore, we would like to extend our well wishes to our Japanese clients. The USD/JPY did manage move ahead by 64 bps to 110.4260, meaning a weaker JPY.

The stronger dollar came about with renewed optimism regarding the US-China trade deal. This coupled with Brexit has been the forerunning news of 2019. March 1st being the official deadline day (where the tariffs will jump from 10% to 25% on traded goods), it seems the markets have optimism a deal will be reached before then. The Shanghai composite was a good example of this moving up 1.4% after the week-long holiday. The Hang Seng also profited 0.7%, bringing a decent return over the last two days. The KOSPI and ASX moved 20 bps but in the opposite ways with the latter declining.

Gold and silver decreased from what seems to be a risky move by the markets and the stronger dollar, moving 41bps and 71bps lower respectively.

The dollar was certainly the king of the currencies today as it strengthened against all the major Asia countries, including Australia and NZ.

Some economic news emanating from China, with the FX reserves keeping flat from last year at 3.070T. HK FX reserves advanced slightly from 424.7B to 432B.

Europe:

The European markets were no different. The CAC increased 1.09%. The DAX which took quite a beating on Friday managed to increase 1.07%.

The UK announced their growth figures for 2018, which suggested that the economy grew only 1.4% down from 1.8% in 2017. Fingers naturally were pointed at Brexit for the uncertainty it brings to the table.  The FTSE shrugged off the news and managed to move higher by 90 bps. The GBP, on the other hand, slipped by 60 bps against the dollar {1.2930} after the news about the steepest contraction of GDP since March 2016 was announced. In addition to the GDP numbers, the construction and production numbers posted the biggest fall since September 2012.

The EUR/USD decreased by 47 bps, as it seems the US-China trade deal really pushed capital flows back into the dollar.

Economic figures, mostly from the UK, show GDP, construction, and industrial production are worse than expectations.

US/Americas:

A new week, but same uncertainty surrounds U.S.-China trade negotiations, a potential second U.S. government gridlock, and mixed Q1 projections. This week, which we’ve talked about as a potentially important turning point, brings with it a deadline for U.S. government to come to a new budget deal – a date imposed by President Trump when he temporarily re-opened the government a little over two weeks ago. Despite the noise, newly appointed Federal Reserve Governor Michelle Bowman stated at the American Bankers Association conference that “our economy’s in a good place.” Bowman noted that inflation is close to the Fed’s 2% target and optimistically supports the Fed’s current policy.

The Dow had another up-and-down day, but closed -53.22 points (-0.21%) at 25052.7. The other major U.S. indices fared better today: the S&P 500 rose just under 2 points (2709.77 close, +0.07% change); the NASDAQ closed the day +9.71 points higher (7307.90 close, +0.13%); the Russell 2K finished +12.59 points (1518.98 close, +0.84%).

The dollar improved 0.44% today before closing at 97.06. Despite the political uncertainty, capital flows indicate that the USD continues to be viewed as the safe haven for parking money.

The USD/CAD increased 0.0024 or 0.18% to 1.3300 from 1.3276 in the previous trading session. The Canadian GSPTSE and TSX 60 both decreased by -0.41% this Monday after closing at 15568.85 (-64.48 points) and 929.15 (-3.83 points).

The BOVESPA fell by another -0.98% this trading session (94412.91 close, -930.20 points).

Energy:

All the major energies were down apart from natural gas, which increased 3.52%. Brent and US crude dropped 1.3 and 2% respectively. Some sources claim this is due to the increase in oil rigs being used, which gives an expectation of greater supply in the future.

Bonds:

The French launched a 3 and 12-month BTF auction with both selling slightly higher but at a negative yield. The US 6-month yield was 10 bps higher than previous at 2.50%.

Japan -0.03%(-2bp), US 2’s 2.49% (+3bps), US 10’s 2.66%(+3bps), US 30’s 2.99%(+2bps), Bunds 0.12% (+3bp), France 0.57% (+3bp), Italy 2.91% (-7bp), Turkey 14.25% (+11bp), Greece 4.01% (-50bp), Portugal 1.67% (+0bp), Spain 1.25% (+0bp) and UK Gilts 1.18% (+3bp).