Market Talk – February 15, 2019

Asia:

The week ended on a disappointing note for the Asian markets from an otherwise relatively decent weekly return.

The Nikkei 225 declined 1.08%, but managed to increase 2.81% for the week. The Shanghai declined 1.37% today. US and Chinese trade talks have yet to come to a conclusion with the situation crossing the mid-month point today.

The KOSPI and Hang Seng lost 1.38% and 2.03%, leaving the Hang Seng to be the worst performer of the week. The ASX rose 24 bps today, ending the week flat.

The AUD also rose against the dollar by 24 bps, marking capital flows entering into the region. The NZD also benefitted rising 29 bps today. The dollar was taking some back from the region as a whole, as it seems risk has been taken off in the region. Both the USDJPY and USDCNY increased by 4 bps.

Gold rose by 27 bps to 1317.89, reaching a two-week high, and silver remained the same at 15.63. The divergence here shows this flight to quality in gold as global investors seem to be withdrawing support for equities during these uncertain times.

Some economic news arrived from China. New loans increased much higher than expected – 3023 Bn versus a forecast of 2800 Bn. Indian Reserves reduced slightly to 398 Bn from 400 Bn. Imports and exports largely remained the same for India.

Europe:

The European markets seemed to be excited over the news that Teresa May’s support was taken away after yesterday’s vote in the house of commons (303 seats against vs 259 for, with 87 seats abstained). Although not legally binding, it did suggest confidence in the Conservative party’s direction, and conviction was being questioned. This certainly shows to the EU that the politics in the UK is in mass confusion. This may be positive going forward for the EU – showing the fragile state of unity within the kingdom.

The results naturally were split between parties, showing a lack of critical thinking. There seems to be little regard for what may be best for the country – instead, it is simply political motivation to point fingers to say “we can do better than you.”

This is a historical moment for Britain. Unless the “strongest plan” and unity is achieved between the parties, then it is inevitable this will not end well for the UK.

The markets seem to react to this with the EU markets, benefitting well, with the likes of the DAX index rising 2% for the day. IBEX, CAC and the FTSE MIB rose close to 2% also. The UK also benefitted rising 61 bps for the day. When you take FX in consideration, the GBP rose against the dollar by 36 bps, whereas the EURO dipped by 26 bps.

Lots of mixed economic data was released from the EU, with the Spanish CPI numbers increasing by 1% YoY. Italian trade balance was -0.60Bn for the month of December. UK core retail sales rose 4.1% and the EU’s trade balance coming in at 17Bn total for December.

US/Americas:

Stocks soared in the States today as yesterday’s noise turned into renewed hope after a new budget deal and positive sentiment on China trade talks. The Dow jumped gained +443.86 points (25,883.25 close, +1.74%). The Nasdaq Composite finished strong +45.46 (7,472.41 close, +0.61%), with the S&P 500 was even stronger +29.87 (2,775.60 close, +1.09%) and the Russell 2000 having the best day + 24.14 (1,569.25 close, +1.56%). This marks the eight-consecutive week of gains for both the Nasdaq and the Dow, and the seventh week of gains for the S&P 500. Quite a turn of events off the lows of December – though, this is very much in line with how we’ve viewed the markets coming into this past week.

In case you missed it, the U.S. was officially placed under a national state of emergency today. President Trump signed the order into effect this afternoon, demanding $8 billion in funding to build the U.S.-Mexico border wall. This came just after the President signed the budget passed by Congress to avoid a second government shutdown, but this will not keep him from trying every angle to uphold his campaign promise of implementing a wall by any means necessary. This issue promises to have more legs as it goes through legal challenges.

Meanwhile U.S. – China trade talks shall continue into next week, but this time shifting from Beijing to Washington. And so it goes.

On a different note, cannabis stocks are surging in both the U.S. and Canada. Canopy Growth Corp., a Canadian-based company, reported today that their revenue during Q3 increased 282%. In October 2018, Canada legalized cannabis at a federal level. In the United States, however, it remains illegal in all but 10 states. The controversial legalities surrounding this potential hot new commodity make it highly volatile.

The TSX Composite gained +142.26 points today (15,838.24 close, +0.91%), led by the TSX 60, which was up +8.84 (944.88 close, +0.94% close). Down south, the Brazilian Bovespa was down -0.50% today (97,525.91 close, -489.19).

U.S. markets will be closed this coming Monday, February 18, in honor of President’s Day.

Energy:

Crude oil increased 2.30% today, making it the biggest weekly gain for 2019. Crude currently is trading at 55.57 per barrel. Brent increased by 2.29% and is trading at 65.99 per barrel. The world’s largest offshore oil field in Saudi Arabia was partially shut down today due to a ship’s anchor cutting a main power cable to the rig. The oil rig has a capacity of roughly 1m barrels of oil, which is enough to cause the market to move. Elsewhere, India declined to take US warning about Venezuelan oil by still being an active purchaser.

Bonds:

Japan -0.02%(-1bp), US 2’s 2.52% (+2bps), US 10’s 2.67%(+1bps), US 30’s 3.00%(-1bps), Bunds 0.10% (-0bp), France 0.54% (+1bp), Italy 2.81% (+1bp), Turkey 14.45% (-11bp), Greece 3.82% (-4bp), Portugal 1.57% (-2bp), Spain 1.26% (+2bp) and UK Gilts 1.16% (+1bp).