Market Talk- August 9, 2018

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The strategic war of words continues between the US and China and with it, the ebb and flow of the Chinese stock markets. Given that the US has weathered all of these headlines, it is doubtful it will start now. There is talk that the domestic indices are receiving a helping hand, but then with todays better than expected data release (12.2% Exports) that talk sounds questionable. Shanghai closed up 1.85% having made this advance just after the opening. The index managed to hold this level for the balance of the day whilst the currency (CNY) gave only marginal money back. The Hang Seng managed a near 1% appreciation also, which was impressive after the negative start. Another impressive performance was seen in the Nikkei even though it finished down on the day. After opening with a 1% decline, it spent the rest of the day trading recovering. The Yen continues to play around the 111 figure, as it tries to decide if it is a safe-haven currency or not! The SENSEX is back with a bid as the INR is back with the offer! As the currency depreciates, so we see a bid for stocks. We are admittedly still in summer volume mode, but even given that the index is pressing back at record highs. This is all about the strength of the US Dollar and the balanced battle between private and public waves.

The Euro seemed more in focus today than core European stock indices. Last seen down -0.5% playing around the hugely influential 1.1550 level, is going to be key for Fridays close. We cracks in the Euro and the fragments seen in some peripheral bond spreads are starting to way on confidence. Today the Greek 10yr yield added 10 basis points to push the yield above 4% will pile on the refinancing costs, even as they make the break. Turkey remain volatile as currency, bonds and stocks feel the pressures. Core closed plus or minus 0.3%, as summer volumes dictates movement. BREXIT is starting to hit headlines again this week as PM Theresa May finally requests ministers to prepare for a possible ‘No Deal’! Sterling has been under pressure for much of the week, but today finally sees the Euro challenging as the biggest decliner. We do see a host of UK data releases tomorrow so, after US numbers also – the close Friday will probably be scrutinised. The Russian Rouble (-5% and -15% YTD) lost ground after the sanctions were announced, but was joined by other currencies.

The second week in August is traditionally quiet, but today seemed even more so. Impressively however, we continue to play at record highs as the US is still the only place to be. Earnings, GDP growth, buy-backs and a dominant currency are all competing as reasons, but if we see strong numbers in tomorrows data this will set records for next week. Very interesting that in the final 30 minutes of US cash trading, we see its currencies and the DOW that suffer. The DOW closed on its days low, but more importantly so did the Euro, GBP and Yen. If this move is supported by tomorrows US data, this confirms the move has only just started.

Japan 0.12%, US 2’s closed 2.65% (-2bp), US 10’s 2.93% (-4bp), 30’s 3.08% (-4bp), Bunds 0.37% (-3bp), France 0.71% (-1bp), Italy 2.89% (-1bp), Greece 4.06% (+10bp), Turkey 18.85% (+65bp), Portugal 1.76% (+1bp), Spain 1.39% (-1bp) and UK Gilts 1.29% (-2bp).