Market Talk- September 24, 2018

The uncertainty continues for China/US trade talks, but this time because China cancelled the talks. It didn’t help sentiment that some core markets (China and Japan) were closed for public holidays which always hits trading volumes. The Hang Seng opened weaker and just appeared to flat-line for the balance of the day, closing down around -1.6%. The SENSEX resumed its negative tint, closing down 1.5% today, but more alarmingly is that the INR continues to drift with it – late in US trading is nudging the 73 handle again! The capital flow continues to flea emerging markets and looks to be heading back to core. Key highlights for this week are still the FED, the Italian Budget, the absolute level of the USD and probably the overdue focus for global (but probably more so European) Bond Markets. The US Dollar strength is the concern for many emerging market issuers as much probably remains unhedged. The HK on and off-shore markets should certainly be an Asian focus. Derivative offerings that have been made upon EM currencies use and so will eventually impact all deal participants. The Asian safe-haven Yen is teetering around the recent lows (112.85) and will be very closely watched for Quarter end levels.

Even though it were quiet trading conditions, core European markets were lower across the board. Headlines over the weekend that the UK may announce a snap November election
were quickly denied but did not stop GBP from recovering some of the late Friday losses. Last seen was Sterling playing around +0.4% higher on the day at the 1.3130 level. The Euro is also benefiting as talk that the US Dollars bounce has gone far enough, Draghi mentions inflation uptick and rumours that the ECB is likely to end QE by Christmas. This was the talk in the Bond Market as we watched both core and periphery spreads widen to US Treasuries even with lower than estimated economic data (IFO). With bonds and stocks both softening in afternoon trade, the mood is conservative with money being taken off the table everywhere. There is a strong chance this accelerates pushing spread back towards US yields. Most core indices down around -0.4% with the Euro backing off of earlier highs.

China cancelling the Trade Talks sent a negative vibe through US stocks and that had repercussions around the world. Same storey different angle, but essentially the same uncertainty and that is what markets dislike. Today had the added confusion with rumours circulating of Deputy Attorney General Rod Rosenstein apparently departing his post, but even that has created confusion as to whether he was pushed or pulled and all that with no certainty as to whether he has left or not! The DOW has taken the brunt of all this falling 150 points, but probably not a surprise after last weeks rally. Energy stocks have shown strength after Brent oil broke the $81 recording a +3% gain for the day. NADAQ has held its own today and actually closes higher on the day.

Japan 0.13%, US 2’s closed 2.81% (u/c), US 10’s closed 3.08% (+1bp), US 30’s 3.21% (u/c), Bunds 0.51% (+5bp), France 0.83% (+5bp), Italy 2.94% (+12bp), Turkey 17.89% (-23bp), Greece 4.07% (+4bp), Portugal 1.88% (+2bp), Spain 1.52% (+3bp) and UK Gilts 1.61% (+6bp).