Market Talk- February 28, 2018

After the weak US retracement the DOW (futures) spent much of the Asian session around the mid 25,500 level. But, interesting that as we have been highlighting for a few weeks here that the DXY looking to be bottomed on time. Jerome Powell’s comments obviously shook markets, but worth comparing currency weighted equity index movements. The Nikkei lost almost 1.5% with the Yen back below the 107 level a +0.75% move. Japanese Retail Sales released at 1.6% missing the 2.1% forecast. Steel producers, energy and exporters were the lagers within the Nikkei which closed on the days lows. Mainland Shanghai closed just off its lows, whilst Hang Seng fell back in afternoon trading. Both closed with daily losses of around 1%. Data release didn’t help as Manufacturing PMI released at 50.3% below the 51.3% forecast. The SENSEX did attempt a positive close mid afternoon, but was beaten back in the final 30minutes to close -0.5% lower.

Much of the talk in Europe was back to BREXIT, with GBP performance reflecting how the market sees the progress so far. Today cable lost a little over 1% falling to a 1.37 handle in late trading. Guess the timing of the latest development between the EU and the UK is not ideal just after the new FED Chair suggested there could be more rate hikes than are currently priced-in. This game will play out again soon after Theresa May said she would be making her opposition crystal clear to the EU’s Northern Ireland proposal. The FTSE was also -0.7% lower following the currency making it a hard day for the sovereign. The DAX, CAC and IBEX all lost around -0.5% on the day with the periphery also feeling the heat. The majority of the declines were seen in the final hour of trading after what many hoped was to be a recovery in stocks. Corporate earnings have been mixed and unfortunately not proving the direction many markets have been seeking.

Cash was up around 150 points just after the opening, but soon was to fall into negative territory probably on the back of GDP, Housing release and PMI data. The opening highs proved to be the turning point and we drifted lower for the rest of the session. For the majority of the day it was the DOW that drifted around -0.75% around 200 points lower. It was interesting that the broader S+P held in a lot longer than the DOW but also carved in the final minutes. Bonds saw much of this dive for safety with gold finishing small down but little changed. The curve is back in flattening theme but that should be expected now following Powell’s opening comments. DXY looking to have confirming its timing and looks to be finding some much needed support.

Japan 0.045%, US 2’s closed 2.26% (-1bp), 10’s closed 2.88% (-3bp), 30’s 3.14% (-5bp), Bunds 0.65% (-3bp), France 0.91% (-5bp), Italy 1.97% (-3bp), Greece 4.35% (+3bp), Turkey 11.58% (+7bp), Portugal 1.96% (-4bp), Spain 1.52% (-3bp) and Gilts 1.5% (-6bp).