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Market Talk- December 6, 2018

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The reason given by many, for todays weakness was the arrest of Huawei CFO (Meng Wanzhou) and that rocked confidence. Technology shares were hit which led to core indices declining across the region. The Hang Seng performed the worst declining 2.47% and that was closely matched by the Shanghai’s -1.7% fall. The CNY reversed much of its recent appreciation and in late US hours is back at the 6.89 level. Given todays fall is following weakness earlier in the week, we are seeing a small safety bid into the Yen, but at just 0.6% is not that alarming. The NIKKEI held steady for much of the day, but eventually joined the regions weakness as we approached the close. Worth noting that volumes are still not great and even with the sell-off leaves much open to speculation. The SENSEX too lost 1.6% but what made it worse still, is the fact the INR looks to have turned negative again, losing ground for the second day.; last seen near the 71 handle.

European indices are adding to the YTD losses and look to be heading for one of their worst years on record. The DAX lost 3.5% today and puts the year to date return back to -16.5%. This puts is close to the Italian FTSE MIB’s return of -15%, but it is seeing political moves that could see it disciplined for possible budget breaches. Indices were mindful of the oil price decline today, when at one stage we saw a 5% fall in WTI close to the psychological $50 level. Keep in mind also that both the Euro and GBP have fallen over 5% also this year, against the US Dollar. That puts the 3year lost for Sterling at over 15%; that’s lumpy if you are a US investor! European rates also saw the flight to quality into the bond market, with UK’s Gilts gaining over 7bp at 10yrs. However, the flight to quality was not seen everywhere and the BTP’s and GGB’s lost 14bp and 10bp respectively (Higher yield lower price). Next week we have the final vote in Parliament on the BREXIT deal and all the market talk is it will fail. They then attempt to realign and its back for another vote. Many expect this to go to the wire and see headline after headline until March 29th, 2019.

Tech led us down and tech turned it around! By the close of trading, core US indices were influenced by the NASDAQ bouncing from a near 2.5% decline to a +0.65% positive close and a move that puts the YTD return at +4.1%. The DOW ended the day -79 points from an 800 point intraday decline. Still a lot of talk that the majority of volume is derivative related and the cash volume does look to support that view. Treasuries were bid but closed the day almost unchanged. The shape of the curve is still weighing on financials and does not look to be reversing that anytime soon. Tomorrow we have unemployment numbers and all will be looking for any signs of inflation expectation. We see growth numbers next week in the states, but also the UK BREXIT vote will dominate cash flows.

Japan 0.05%, US 2’s 2.76% (-4bp), US 10’s 2.89% (-2bp), US 30’s 3.16% (-1bp), Bunds 0.23% (-4bp), France 0.66% (-2bp), Turkey 16.60% (+30bp), Greece 4.21% (+10bp), Portugal 1.80% (+1bp), Spain 1.46% (+1bp) and Gilts 1.24% (-7bp).