Market Talk – January 29, 2019

Asia:

Pretty uneventful day, with the Nikkei up slightly at +8bps, the Shanghai Composite down -10bps and Hang Seng drops -16bps. Looking ahead to tomorrow we have quite the day with Chinese Manufacturing data being due, which as we already see has great influence over energy markets – a negative number here will have a global impact, so look out for that. The CNY USD decreased to a 6 month low of 6.7304

Europe:

The main event was Teresa May stating she is willing to try and reopen talks with the European Union. There is huge resentment within the parliament towards the UK making a hard Brexit, talks from members point at “decades of being impoverished” if the UK leaves without the deal.

The uncertainty centered around whether there would be an extension of article 50, and if so, for how long. The FTSE 100 reacted well to Theresa May and the anticipated voting (Brexit plan B was scheduled after market close). Subsequently the market rose 1.29%. Some volatility in the GBP ahead of the amendment votes, as the GBP against the USD rose to session highs at 1.32 but quickly fell down to session lows at 1.31. Most of the European markets closed positive, CAC 40 closed +81bps higher, hitting a 7 week high. The DAX was relatively flat, +8bps.

After the close, the proposal won by 16 votes (317 votes vs 301), which Theresa May now hopes strengthens her position to negotiate with the EU for a “legally binding change” – something the EU has said it will not do. More on this to come.

USA:

A relatively ho-hum day as corporate earnings continue to roll out, and the daily China trade talks watch continues. From an earnings perspective, the main event wouldn’t take place until after the close – Apple reported in-line with what most had expected, following their pre-announced lower guidance for iPhone sales, citing weaker growth in China.

On the topic of China, the U.S. filed criminal charges Monday, requesting extradition of Chinese company Huawei’s CFO Meng Wanzhou (daughter of founder and president Ren Zhengfei) – she is currently held in Canada. This, just as U.S. officials plan to meet with Chinese Vice Premier Liu He this week to advance trade negotiations ahead of the current March 1 deadline.

The trading session ended Tuesday with the Dow closing slightly higher at 24,579.96 (+51.74, or 0.21%), the S&P 500 closing slightly lower at 2,640.01 (-3.85, or -0.15%), while the Nasdaq (Composite) also closed down at 7,028.29 (-57.40, or -0.81%). For the mid-caps, the Russell 2000 followed suite closing at 1,471.45 (-2.09, or -0.14%). Bond yields fell while gold prices rose.

Tomorrow will see more earnings, and another Fed announcement, but there is no expectation of a rate hike at this time, keeping fed funds rate between 2.25% and 2.5%.

Energy:

As mentioned yesterday, the U.S. imposed sanctions on the Venezuelan state owned firm PDVSA – home to the world’s largest proven oil reserves – effecting upwards of 500-thousand barrels per day that are exported to the U.S. This of course drove Oil slightly higher.

Tomorrow we will have the announcement on the Chinese Manufacturing data as well as the Crude inventories, so likely another eventful day in the energy sector.

Bonds:

Japan 0.01%(+0bp), US 2’s 2.58%, US 10’s 2.715%, US 30’s 3.046%, Bunds 0.20% (+5bp), France 0.61% (+0bp), Italy 2.65% (-2bp), Turkey 14.65% (-16bp), Greece 3.97% (-8bp), Portugal 1.68% (+2bp), Spain 1.24% (+2bp) and UK Gilts 1.27% (0bp).

Greek 10 year bond yields have now tested a 12 year low at 3.97%, which is impressive that back in 2015 they were in the high teens (17.6%). Which makes you wonder, what has changed that drastically? They still find themselves above 180% Debt to GDP and an unemployment rate of north of 20%. Italian bonds were also making a 6 month low at 2.65%.