Market Talk- May 14, 2018

A solid performance from Asia with energy, tech and real estate leading the Hang Seng to another 1%+ return day. Although the HSI was the front runner, there were good gains made for all the core. Sentiment in mainland was probably helped by a tweet over the weekend by President Trump suggesting ongoing trade negotiations maybe more orchestrated than many may have assumed. The Nikkei rallied too with a +0.5% return, not bad to start the week, but after reflecting on the Yen depreciating -0.3% maybe not such a strong day after all. We saw a similar storey in India where the SENSEX added +0.1% having spent the morning in positive territory and the afternoon below water. The INR however, lost ground throughout the day, closing at its weakest level in over a year. Not so much a weaker INR but more the continued strength of the US Dollar around the world.

Last weeks Wednesday low in the Euro looked good for the Friday close, but having seen a less than impressive performance today is now looking to have set itself up as no more than a target. For much of the European session, we saw stocks lower, a steady currency and a bond market that appears to reflect unease! That is where much of the talk centred today, as yields started to creep higher. Core Bunds and OAT’s narrowed to treasuries with peripherals also edging lower for the first time in a while. The political uncertainty coming from Italy is promoting questions that will require answers even though not hitting mainstream headlines so strongly. Could finally be the week European bond traders have been waiting for as US 10yrs test the 3% yield yet again.

Energy, healthcare and financials were the leading groups today, helping the DOW to its 8th straight day of gains. This is encouraging as looks alike the big money is starting to nibble again. Early session prices were the initial rollover from Asia and the possible mutual off-set. However, as the day wore-on, it did get a little heavy as the US Dollar regained early losses against the majors and all whilst volumes remained light. Currency markets are still the one to keep a close eye on, but the move today in Europe will not take long to command the attention. Stocks did drift into the close, but in all a well behaved day, still light on volume but heavy on capital flow. As mentioned Friday, there remains a huge amount of money in cash and short term instruments which are still looking for signs of comfort and the next move will be on!

Japan 0.05%, US 2’s closed 2.54% (+1bp), 10’s 2.99% (+2bp), 30’s 3.12% (+2bp), Bunds 0.61% (+5bp), France 0.83% (+5bp), Italy 1.92% (+6bp), Greece 4.01% (+4bp), Turkey 13.41% (+15bp), Portugal 1.69% (+3bp), Spain 1.32% (+7bp), and Gilts 1.47% (+3bp).