Market Talk- January 14, 2019

A weak start to the week for Asia probably reflecting China’s poor trade data. This mornings data was the lowest in two years and raises concerns of an accelerating global slowdown. The data also posts a 17% increase with the USA, but also worth mentioning is that imports are over 15% lower from Germany too. Both Shanghai and the Hang Seng closed on their days lows, but at least these numbers are on the table ahead of any announcement. The HSI suffered most (-1.38%) as the demand for technology shares appear to have waned recently. Shanghai closed off -0.71%, but did see the Yuan set at its strongest rate (6.765) in six months. Australia’s ASX reversed course at lunchtime trading and close at the days lows. A dip in commodity prices and a strengthening USD caused by the China data, helped prices to close down on the day reversing early morning strength. The SENSEX talk was that foreigners were unloading paper and escaping the currency with concerns over slowing global growth. Utilities, financials and auto’s led much of the decline, but the INR flirting with a 71 handle is a note of concern. Japan closed for a national holiday.

European indices opened lower following on from weaker Asian session. This is a huge week for the UK as it faces the parliamentary BREXIT vote in the house tomorrow. The British press was awash with the views of the two leaders, even though those of Jeremy Corbyn remain undecided. Today Theresa May voiced concerns for the vote as it is expected to face a painful defeat tomorrow. That said, GBP did rally today with talk that the EU may have offered some last minute reprieve on detail. An Assistant Tory whip Gareth Johnson was supposed to be building confidence, but actually resigned this afternoon! Currencies have been whipsawing on headlines and in late trading remains +0.35% higher on the day. FTSE lost 1% on the day and 10yr Gilts are 2bp wider. CAC and DAX are both around 0.35% lower on the day. Stirling is pricing in some good news, but the rally looks to be incredibly fragile as we currently stand.

Futures were already trading lower following the trend set from China. The Chinese trade data started the sell-off this morning and had not yet managed to turn prior at the cash opening. The lows were set just after the opening bell and the balance of the day spent retracing the opening move. Tech and the NASDAQ were the lagers all day and even at the close was still off almost 1%. Citi started the financials reports for the week and the numbers were not that great. Initial losses however, were ignored and by the close had managed to trade higher on the day once traders focused on the cost cutting element of the results. This move is helping sentiment all round, we were extremely close at one stage to see the DOW trade in positive territory. Worth keeping an eye on corporate bonds as yields start to rise and liquidity remains an issue. The recent 2/10 flattening has masked much of this move as investors have been chasing returns. However, any steepening will have impacts both on governments but also in the credit space.

Japan 0.01%, US 2’s closed 2.53% (-2bp), US 10’s 2.71% (+1bp), US 30’s 3.06% (+2bp), Bund 0.23% (u/c), France 0.63% (-3bp), Italy 2.84% (-1bp), Turkey 15.96% (-5bp), Greece 4.25% (-1bp), Portugal 1.68% (-2bp), Spain 1.41% (-3bp) and UK Gilts 1.30% (+2bp).