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Market Talk- March 5, 2018

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Although at the National Peoples Congress meeting, China announced an estimated annual growth rate of 6.5% – it was the Hang Seng that took centre stage as far as conversations were concerned! It appeared as though the market finally realised it was supposed to be declining and that led financials to push the index down 2.3% in todays trading. Telecoms, and real estate all weighed on the index with talk that money was being reversed and cash heading to mainland markets. Interesting that core Shanghai index did close higher (+0.1%), even if only marginal! Global trade fears are encouraging long liquidations and especially as all his is still just an idea and not firm still yet. The Nikkei drifted lower with heavy industrials all being influenced by the US steel and aluminium tariff concerns. The Yen remains mid 105’s even though it tends to drift towards the 106 handle as headlines subside, the strength continues to be a matter of concern for exporters. The SENSEX also lost near 1% on talk of foreign selling and all on fears of possible trade fears.

Europe was anxious to hear more on Italian government coalitions talks, but was increasingly likely that a Euro sceptical (not anti-establishment) group could be the front runners. BTP’s (Italian government bonds) took a hit across the curve and even the FTSE MiB traded lower on the concerns. The next step could be the extent of the League Party and the Five Star coalition possibilities. Interestingly, the UK’s FTSE and French CAC are relatively unchanged whist the DAX sees better demand (+0.4%). Bonds meanwhile, are not seeing the flight to quality you would normally expect given the Italian concerns; this will probably take a few days before the realisation kicks in and the cash starts to play. All you need now is a rally in US stocks and we will see everyone scrambling to cover positions.

US market opened weak but were soon bid as the capital flow finds its way into the private sector. Coupled with this move was the assumption that President Trump appeared to open the door for trade negotiations following a few tweets and the markets saw an about turn. Early morning losses were rejected and we saw strong rallies in all indices across the curve. 1%+ gains were the norm with the large cap DOW seen bouncing 1.5% on the day. Lots of talk of cash sums being invested and looking for more on any retracement.

Japan 0.05%, US 2’s closed 2.24% (u/c), 10’s closed 2.88% (+1bp), 30’s 3.15% (+1bp), Bunds 0.65% (+1bp), France 0.93% (-2bp), Italy 2.10% (+15bp), Greece 4.32% (+2bp), Turkey 11.64% (+4bp), Portugal 1.93% (-3bp), Spain 1.48% (-4bp) and Gilts 1.49% (+2bp).