Market Talk- March 26, 2018

Asia opened weak but the trend change came not long after the opening for many markets. The screens and pages over the weekend were predictably full of the talk of possible US-China trade wars with everyone predicting the worst. News that South Korea may avoid steel tariffs rescued many markets and probably led by the KOPSI followed closely by the SENSEX (through time more than relationship). With rumours that the BOJ were in lending a supporting hand for many ETF’s, the Nikkei closed the day up 0.7% recovering from an opening 1% decline. Yen has traded back into the 105 handle in late US trading easing some of the USD’s decline. Both Hang Seng and Shanghai also saw the opening prove to be the days worst levels, but only the Hang Seng managed a positive (+0.8%) close. Although the Shanghai index fell short the broader Shenzhen (500 composite) did close over 1% firmer. SENSEX recovered before lunch making positive ground to return an impressive +1.5% by the close. Adding to this performance was the currency, last seen 64.85 to add additional focus on the world stage.

Although European indices climbed throughout the day, the performance was less than convincing demonstrated at the closes. The days highs were hit around lunchtime, but despite US markets opening firmer it did not help Europe. The news that Russian diplomats were to be expelled from around 14 European countries seemed to accelerate US and European equity divide. The DAX, CAC and FTSE actually turned negative as the result of steadily losing energy momentum. Italy’s FTSE MIB traded heavy all day – the result of two political “populist” parties discovery a mutual understanding. This resulted in a 1.25% in todays performance. The final hour of trading took all core down to close with FTSE and CAC both around -0.5% whilst the DAX lost -0.85%. The Euro and GBP both gained +0.75% against the USD neutralizing most of the equity losses for the international investor. Bond markets were also starting to reflect the rising peripheral tensions even though not displayed in the currency just yet.

US opened strong and despite the weak drift mid-session, just saw nothing but buyers all afternoon. All major core rallied over 2.72% as the broad based rally had all stocks involved but saw Facebook lag most of the rally as it remains under-pressure. The big question remains is this the buy the dip or a sell the rally market still? We expected the Q1 correction and remain unsettled and volatile for much of H1, and that still looks to be playing-out as expected. The headline “Trade War” spooked markets, but then it really could have been anything; even down to Japanese fiscal year end and taking cash back home. Anyway you look at it the normalised volatile return is accentuated as volumes remain on their 10yr long term average. Volume today was 22% above the 10day average. Microsoft, Intel and financials all showed healthy gains, with the S+P returning its best day in over 3years.

Japan 0.025%, US 2’s closed 2.28% (+3bp), 10’s 2.84% (+3bp), 30’s 3.07% (+1bp), Bunds 0.53% (+1bp), France 0.78% (+3bp), Italy 1.91% (+4bp), Greece 4.38% (+4bp), Turkey 12.43% (+10bp), Portugal 1.69% (-1bp), Spain 1.25% (u/c), and Gilts 1.44% (u/c).