Market Talk – January 31st, 2018

The sell-off continued in some of the Asian markets, with the Nikkei, in particular, losing an additional -0.85% today. Commodities heavily influenced values today, after we saw manufacturing and miners weigh on sentiment. Although the index has fallen 4.55 this month, it remains narrowly positive for the year. The weakness cam in the final hours of trading, after it had held small gains for much of the trading. The currency was the opposite reaction, having traded strong (around the 108.50) before breaching the 109 handle in US session.  KOPSI, SENSEX, and Shanghai also traded heavy but lost only minor declines. The Hang Seng saw many of yesterdays losses recover with financials leading the way. The index closed up +0.9% with banks and real estate companies bouncing in lighter volume. Not too much activity but we do have the FED and month end to cope with.
We saw a mixed story in Europe with positives from the CAC (+0.15%) while the DAX closed small down (-0.1%). Much of the conversation, therefore, surrounded the UK and surprisingly – not BREXIT! The UK’s FTSE closed down -0.75%, with  Capita stock falling 47% on profit and restructuring warnings. Capita offers customer services, call centers and management services for both corporates and government. Employing near 70k people the talk is that they had around 150 government contracts. Unsurprisingly, many voices this evening calling for inquiries into the health of the pension fund. Expect this to also affect Gilts as creditworthiness may very well become a concern soon. Away from here a quiet day awaiting the FED decision having already seen a good 234k US ADP report.
Probably on the back of the ADP 234k report, US stocks opened bid across the field. However, despite a 200+ point rally in the DOW it was not to last. Janet Yellen in her last address before she leaves office this evening, announced interest rates remain unchanged. The market did momentarily retouch morning highs, but within minutes was struggling to remain positive. It went to the final seconds to see if we closed higher, but firmer it was although volatility has certainly returned.  The yield curve returned to its flattening theme and probably because talk is that fresh issuance will be concentrated on the 2-3yr parts of the curve.
Japan 0.085%, 2’s closed 2.15% (+3bp), 10’s 2.72% (-1bp), 30’s 2.94% (-5bp), Bunds 0.69% (u/c), France 0.97% (-1bp), Italy 2.02% (-1bp), Greece 3.69% (+6bp), Turkey 11.39% (-20bp), Portugal 1.94% (u/c), Spain 1.42% (+2bp) and Gilts 1.51% (+5bp).