Market Talk- September 19, 2018

A strong performance from most Asian markets following the US run. Rather the news than the rumour as many people feared. Both the Shanghai and Hang Seng opened unchanged but from that point on, both made steady progress throughout the day. A strong close for both (+1.2%) after the retaliatory response, but does only appear to be getting headlines in the press as volumes are still reasonable. Resources, financials and Agriculture were the main leading stocks with exporters and industrial metals losing ground. The Renminbi recovered from yesterdays lows, managing to close at today high (6.8465), but is still a little way of the YTD low of 6.933. The Yen was another currency that was suffering early in the day but by close was back playing with the 112 level again. This was another reason why the Nikkei added over 1% by the close, but obviously did benefit with the help of the region. The SENSEX was one exchange that is still feeling the pinch as emerging market money exits the game. It was the bank and tech stocks that could be seen leading the index to a 170 point fall today. Currency did follow at first but then found a domestic bid and we closed 72.38.

Core European indices were all around +0.5% higher today, but the focus appeared more towards fixed-income than equity markets. Bonds has been watching the rise in treasury yields and probably with reason to be concerned. The US two year note is now yielding close to the 2008 highs at 2.81%, but compared to the Germany 2yr (Schatz) at -0.54% that is a spread of 335bp. Insanely, by comparison the 10yr spread is not that bad at 259bp. The fear is that if the big European attempts to back away, there may very well bid a search for the real buyers. One BREXIT headline hit the screens (surrounding Theresa May and the Irish boarder) and Sterling fell 60 pips in a few seconds with Gilts also being slammed. Dealers are nervous still and any headline a reason to jump ship.

The DOW was the steady-eddy of the day, having rallied over 125points at the opening at its peak made over 200. However, it did give a little back but still managed to add +0.61% to the YTD figure. The NASDAQ seemed the laggard of the group closing I negative territory but then it is up over 15% YTD. The DOW still has a way to go before it is close to that return for the year as is still only 7%, whilst the S+P is at 9%. Financials are alive again as yields start to rise, but are expecting some help from the FED as a rate rise is on the cards now.

Japan 0.11%, US 2’s closed 2.81% (+1bp), US 10’s closed 3.08% (+2bp), US 30’s 3.23% (+3bp), Bunds 0.49% (+1bp), France 0.79% (+1bp), Italy 2.85% (+7bp), Turkey 18.05% (-13bp), Greece 4.05% (+1bp), Portugal 1.88% (+4bp), Spain 1.52% (+2bp) and Gilts 1.61% (+4bp).