Market Talk- July 24, 2019

It was business as usual in most Asian markets today, with the Yuan declining followed by a rallying stock market. The Yuan hit it lowest level (6.8255) in over a year today, as market fears the support has been side-lined. The Shanghai index continued its firm run gaining an additional 1.6% today with constant support from the Hang Seng (+1.4%). Another positive day also for the ASX as commodities and the A$ start to move with demand. The SENSEX (+0.3%) too reflected the same pattern of currency weakness supporting stocks indices. Intraday the INR hit 69.05 which is probably an expected route these days. China is actively following supportive domestic measures but is increasing looking as though they will face considerable market scrutiny. Expect more of the same, but we could have some fun and games Wednesday as the EU and USA discuss trade and followed Friday by US GDP.

Europe benefitted from after hours US Google numbers and a positive Asian session, but appeared to ignore the poor PMI (Purchasing Managers Index) which missed by 0.6% at 54.3%. All this encouraged rallies in core DAX, CAC, and FTSE MIB all added around 1.1% on the day. Spain proved a little less ambitious with a +0.4% rally. The UK’s FTSE closed +0.7% but the currency improved after BREXIT talks appear to have taken a positive tone (for the markets anyway!). Today we heard that UK Prime Minister Theresa May is to take personal command of negotiations therefore establishing “One chain of command”. Sterling obviously liked what it heard and we saw a pick-up in both price and traded volume. Emerging markets still see cash out-flows and it was accelerated today in Turkey. Many had expected the Turkish Central Bank to raise rates 150bp but they decided not to act. The Lira lost 3%, while stocks and bonds lost around 2% reflecting a lack of market confidence.

US futures were trading better all day ahead of the cash opening. All core indices opened higher as confidence and a rush for US Dollars remains the dominant theme. An intraday rally in the NASDAQ of over 1% (to contract highs) was reversed into negative territory as profit-taking hit prices. Lot of talk around the financial centres that dollar funding is starting to be bid higher. Worth keeping an eye on 3M OIS spreads again, if you ever took your eye off it from last time!

Japan o.085%, US 2’s closed 2.64% (u/c), 10’s closed 2.95% (-2bp), 30’s 3.08% (-2.5bp), Bunds 0.39% (-1bp), France 0.7% (-1bp), Italy 2.67% (+4bp), Greece 3.82% (+1bp), Turkey 17.87% (+167bp), Portugal 1.76% (u/c), Spain 1.36% (-1bp) and Gilts 1.27% (u/c).