Market Talk- March 21, 2018

Core indices drifted lower today and possibly from the headline that the Central Bank continues to take steps towards opening its markets. Todays announcement that the domestic market will be open to foreign third party payment firms is another move towards internationalisation. Shanghai and Hang Seng closed with only small losses (-0.3% and -0.4% respectively), which is probably to be expected ahead of possible trade war and the Federal Reserves rate decision. The A$ remains heavy which helped the ASX a touch, but also a healthy bounce in some key commodities. SENSEX added to yesterdays gain with a 0.4% return as confidence continues to build.

Europe was pretty much in the red for most of the day and only managed to rally at the close following the US market bounce. It is visible that the US markets continue to be the main driver of events and that is not just because the FED is announcing this afternoon. Given that most hot topics involve the US, this decision will be the trigger for markets into quarter end. The EU appeared to respond to possible trade wars today after it proposed plans to tax digital companies where they generate value rather than where the companies are headquartered. Volumes were light today but respond well to the energy price rally whilst financials and construction stocks weighed on sentiment.

Volumes were light in US trading just ahead of the FED but, probably due in part to the heavy snow storm making travels into the office more challenging. Many will be watching for the FED outlook going into Q2 especially as we watch 10’s trade above the psychological 2.90 level. Energy inventories were a surprise and with a lower release helped a +1.3% rally today. Upon the FED announcement, the initial surge was turned around and we eventually closed just a little lower on the day. From the FED conference we can ascertain that the Dot-Plot will become a little more hawkish, they are happy with current projections and they still surprised no inflation. FED/Funds above the inflation rate, the first time in around 10 years. All core indices closed close to unchanged on the day, with the DOW, NASDAQ and the S+P off just -0.2%.

Japan 0.04%, US 2’s closed 2.30% (-3bp), 10’s 2.88% (u/c), 30’s 3.11% (u/c), Bunds 0.59% (+1bp), France 0.83% (+1bp), Italy 1.92% (+3bp), Greece 4.18% (+5bp), Turkey 12.15% (-12bp), Portugal 1.74% (+4bp), Spain 1.32% (+3bp) and Gilts 1.53% (+5bp).