Market Talk- February 20, 2018

Yesterdays enthusiasm could not be sustained in such thin volume and so it was with HSBC’s earnings miss that returns the fear! The Nikkei took much of the steam and consequently returned 1% of its recent gains. The finance sector was heavy probably responding to HSBC’s worries as most of Asia watched their shares decline over 3%. Retailers were also heavy down around 2% with Industrials following suit. Exporters held-in reasonably well as the Yen lost much of the recent flight to quality bid and was last seen trading mid 107’s. Hang Seng reopened today and shared the sentiment with a -0.8% decline for the day. The ASX closed almost unchanged which was actually an impressive close as much of the day was spent in negative territory. The SENSEX had the opposite trend, having spent 90% of the day positive only to decline in the final hour.

Fortunately in Europe, an array of positive earnings managed to off-set the declines seen in the financials and we a broadly positive day for Europe. Core indices closed strong with near 1% gains seen for DAX, CAC and IBEX with the noticeable outlier being UK’s FTSE. Away from earnings, many concentrated on BREXIT, Greece and ECB posts. The UK continues to speech play but today both the stock market, gilts and they currency lost ground, modestly admittedly – but all lost non the same! The Greece talks centre around the August bailout timeline. It is rumoured to have set aside funds for stability and seeks to emerge from the bailout looking to end the current monitoring. The ECB talks concerns replacements at the board with Jens Weidmann being popular in much of the coverage. Along with GBP declining the Euro (-0.65%) took much of the pain in the DXY bounce today.

US futures were heavy prior to the cash opening but the Walmart miss just ensured that weaker opening. As you would expect, the retail sector led the market lower as Walmart shares lost around 10% on the day. The selling pressure was to build as we approached the closing bell with all indices trading close to their days lows. Another topic hotly discussed today was the amount of Bond and Bill issuance because of the recent shutdowns. This week we see $179bn hitting the market with todays auction probably only moderate at best! When considering the yield spreads between US, Europe and Japan short paper, if be worthwhile to remember it is not just absolute spread but consider the currency hedge that is also required! Gold lost around $20 (1.3%) today with the strength of the USD and a lack of safe-haven demand in what still appears to be a calm stock market decline.

Japan 0.06%, US 2’s closed 2.22% (+3bp), 10’s 2.89% (+2bp), 30’s 3.15% (+2bp), Bunds 0.74% (+1bp), France 1% (+1bp), Italy 2.06% (+2bp), Greece 4.29% (+11bp), Turkey 11.59% (+3bp), Portugal 2.02% (+3bp), Spain 1.52% (+3bp), Gilts 1.61% (+1bp).