Market Talk- August 27, 2018

The PBOC change in technical methodology for pricing Yuan was the reason for the stock rally in Asia this morning and also responding to Powell’s comments. It could be political, but the move does look to be underpinning the Yuan, for the moment, as we head towards the next round of Trade Talks. Slowing the Yuan’s decline is Dollar friendly, which will help politically and stocks both domestic and international certainly read it that way. The Shanghai and Hang Seng rallied 2% on the day, as the currency tripped from 6.89 to 6.8150. Prices on both exchanges, rallied from the open and even managed to close at the days highs. Futures are setting the signal or a strong Tuesday open as the US indices set another record day. The Nikkei also saw a good all round performance with all sectors adding to the gains. Sentiment, even in light volumes – with the UK out for holidays – will make month end closes very interesting reading. The SENSEX and NIFTY hit yet more record highs, but is back to watching the INR suffer again. Granted, the currency decline was not that much, but with a 70 handle the target just moves higher with anticipation. This trend is still in play, but worth watching month end numbers.

Europe used todays UK absence as a reason to keep the lid on volumes. We had more to focus on today as Turkey returned from holidays. For much of the day the Turkey 10yr Bond traded down from a 21 handle, but couldn’t hold that for the 21.03% close. The TRY is also back under pressure losing another 2.7% today and was last seen trading 6.1650. The Euro made ground against the USD with a 0.5% bounce which also managed to drag a +0.3% bounce in GBP. The DAX was the star European index with a +1.16% return on the day. Given the broad stock rally we are seeing yields edge higher across both core and periphery. In Germany the 10yr Bund added 3bp to close 0.37% matching the comparable 3bp gains for the Netherlands and France. Tomorrows opening could be fun as the US markets were only up 150 points when Europe closed! The cash flow into the US continues, so will be good to see if the DAX and co manage to add more or will it play out in currency instead.

US markets opened strong with the DOW gaining over 250 points in the opening hours. The Mexican trade deal helped provide confidence and the momentum did the rest. Fresh record highs were made with the S+P adding almost 1% and the NASDAQ hitting 8k in the morning session. Major movers were stocks related to the Mexico move and so saw exporters auto’s and railways close higher. The DOW finished over 1% firmer with the S+P and NASDAQ at record closing levels.

Japan 0.09%, US 2’s closed 2.64% (+2bp), US 10’s 2.84% (+2bp), US 30’s 2.98% (+1bp), Bunds 0.37% (+3bp), France 0.71% (+3bp), Italy 3.14%, Greece 4.13%, Turkey 21.03% (+13bp), Portugal 1.82% (+1bp), Spain 1.40% (+1bp) and UK 10yr 1.28% (closed).