Market Talk- January 19th, 2018

A positive day for core Asia but not that convincing. You could highlight the Australian ASX as one key core that set a weaker tone settling -0.15% lower, but we also saw the Hang Seng and the Nikkei in and out of negative territory. In Japan the Nikkei was better bid in the morning session but traded heavy in the afternoon session even driving a bid back into the safe-haven Yen (110.60 last seen). It did manage a +0.2% better close but looked less than convincing. China’s Shanghai and the Hong Kong’s Hang Seng both performed the better Asian exchanges closing +0.4% higher the pair. News that the HSI has received huge cash inflow for the first three weeks of 2018, with talk that real estate is the hot sector. The Shanghai index reached its best level in nearly three years even as the on-shore Renminbi reached its 2yr high above 6.4 mark. The Dollar Index (DXY) traded heavy today as it broke the psychological 90 level in early trade. Hot topic in Asia and taken into the European session is the concern that the US government may end Friday in deadlock and that faces a potential US government shutdown. Just to address many concerns coming in, we would not expect such action to affect its credit rating.

Europe stood in stark contrast to the Asian session with a strong return across the field. Currency did weaken (Euro -0.25 and GBP -0.3%) but stocks were over 0.5% on the whole. The German DAX was the highlight (+1.15%) after strong Eurozone data hit the screens. The Current Account number came in 2bn higher at 32.5bn against the previous 30.3bn. The UK’s FTSE after a weak opening found its legs and eventually closed around +0.4% higher. We did see a dip in the index after the Retail Sales number disappointed markets, so the final closing number was an outstanding effort. French President Emmanuel Macron was vocal following his visit with Theresa May. He warned that if the City wished for access to the single market, they would be expected to contribute to the EU budget! Still lots of reports that MiFID 2 is killing volume and trade. Talk is that the options volumes have almost died with many still even unsure what they are allowed to offer – staff losses anticipated! Gold is seeing a bit of a bid and continues to play around the mid $1330’s. Oil also trading heavy with its first loss in over a month and settling down over 1% on the day ($63.25 last seen).

Most of the US trading day was dominated by the fear of a potential government shutdown. The DOW certainly traded nervously and mostly in negative territory until the final hour when rumours started to circulate that the closure may be avoided. We are hearing speculation that because of the stock markets continued strength, a few are suggesting the FED moves ahead of its January meeting! Financials are making headway again on talk of further deregulation. IBM did weigh on the index early in the session (based on poor results) but was a side note by the end of the day. Indices closed higher on the day as sentiment shrugs off the fear of government shutdown.

Japan 0.082%, US 2’s 2.05% (-2bp), 10’s 2.64% (+2bp), 30’s 2.91% (+1bp), Bunds 0.57% (-2.5bp), France 0.84% (-1bp), Italy 1.95% (-3bp), Greece 3.76% (+2bp), Turkey 11.81% (+8bp), Portugal 1.95% (-4bp), Spain 1.44% (-3bp), and Gilts 1.34% (u/c).