Market Talk- January 17, 2019

Main talking topic in Asia today was in the Chinese market after Premier Keqiang’s warning of a difficult year ahead. Offering commitments of additional public services and infrastructure, along with various public spending support, the market initially responded well. Trading from negative territory, both the Hang Seng and Shanghai indices climbed back to trade around +0.7% higher on the day. However, this was not to last and in the final hours fell back into negative territory and closed off -0.5% and the days lows. The PBOC also added a record amount of liquidity (close to $83bn) as some key indicators remain close to record low levels. These actions are ahead of Sundays GDP, Industrial Production, Retails Sales and Unemployment data releases that are all likely to have declined. As the Chinese slowdown fears spread, so the region sees money running home. Interesting that the Yen is trading weaker and the safe-haven demand looks to be waning as it trades with a 109 handle.

European markets are finding it increasingly difficult to decide what they should be doing, but with BREXIT being anyone’s guess – that is probably not surprising. The key feature today was the +0.75% rally seen in GBP. Speculation that Article 50 maybe delayed (for up to a year) and even a second referendum are circling many trading floors. Although Theresa May invited opinions from all parties, she has in the past insisted BREXIT means BREXIT. One sticking point is that in order for these discussions to take place, they are insisting that a ‘No Deal’ BREXIT be taken off the table. Worth remembering that 400 of the 600 constituencies voted ‘Out’ but MP’s have decided not to follow that; maybe they forgot 498 of them voted to trigger Article 50. European banks were weaker this morning following news of the US actions against Huawei and the possible disruption of trade talks. This followed poor earnings release from Society Generale whose shares fell over 5%. Italian banks were also lower but talk of possible mergers appeared to limit these losses. Most core indices were off around -0.4% whilst the FTSE MIB closed almost unchanged.

US market were marginally positive for both the broader S+P and NADSDAQ whilst the DOW just meandered back and fourth. However, then reports of a possible break through as US is considering easing trade tariffs on China had strong bullish tone. The DOW instantly rallied 250 points, with other indices adding 1%. These rumours were quickly denied, but still stocks held on to much of those advances. Actually, the Russell 2k managed to recover and set new highs as we enter the close. Economic data released today pointed to better growth as Initial Claims fell and Factory Orders rebounded. US government shutdown has now been running since December 22nd, so there is growing concern this may hit the January jobs numbers in February. All indices closed around +0.75% on the day.

Japan 0.01%, US 2’s 2.55% (+1bp), US 10’s 2.73% (+1bp), US 30’s 3.06% (u/c), Bunds 0.24% (+2bp), France 0.64% (+1bp), Italy 2.76% (+1bp), Turkey 15.39% (-13bp), Greece 4.18% (-2bp), Portugal 1.75% (+3bp), Spain 1.36% (-1bp) and UK Gilts 1.33% (+2bp).