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Market Talk- May 16th, 2017

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Asian markets performed on the back of a strong US session which in turn was helped by the oil price rally. Having heard that Russia and Saudi had planned production cuts that could run into Q1 2018 we saw renewed confidence as investors moved away from the USD and into Euro, GBP and JPY. The yen strengthened after the Nikkei failed to follow the firmer trend for the morning session but had a change of heart by the close, to end with a +0.25% gain. We came within a few points of the magical (more psychological really) 20k level but drifted in the final 30 minutes of trade. Talk in China that policy makers are attempting to stabilize helped sentiment, ending the day with a positive +0.75% for the Shanghai but a small negative (-0.15%) for the Hang Seng. Another solid session for the SENSEX closing up +0.8% with strong gains seen from Exporters. The A$ managed a small gain after the Reserve Bank minutes but remained in a tight range as the weight of sellers continues. The INR continues just above the 64 level but sentiment is currency positive as the domestic economy continues it solid performance.

The Euro saw its strongest day in many months rallying over 1.1% on the day. Although we saw a positive run for the currency core equity indices closed the day weaker with small losses for DAX and CAC and a +0.2% gain for IBEX. Strong UK inflation data pushed the FTSE a near 1% higher today, releasing at 2.7% firmer than the 2.3% seen in March. There is talk that its because of the mismatch over Easter dates and the increase in air fares but that will be settled with next months data. GBP’s is still down from the referendum last year and will continue to fluctuate until BREXIT negotiations are underway. There was also better news for Eurozone GDP released at +0.5% for Q1.

Given the news surrounding President Trump and the sharing of information with Russia the US markets did well to maintain such a tight trading range. Earlier highs were a little too much and we tended to drift back to around unchanged but we did see losses for the DXY today. This is the fifth day in succession that the DXY has suffered and this evening we trade around the 98.05 level -0.8% on the day. Today’s story just adds to the growing frustration at the speed of supposed tax and regulation reforms. The longer that takes to move the US trades sideways. Earlier this year the DXY hit 14 year highs on expectation of renewed structure, the market will have to wait even longer.

1.30% (u/c), 10’s at 2.32% (-2bp), 30’s at 2.99% (-2bp) and Bunds at 0.43% (+1bp), this closes the US/Germany spread at +189bp. France 0.89% (+2bp), Italy 2.22% (-4bp), Greece 5.59% (+3bp), Turkey 10.36% (+3bp), Portugal 3.26% (-8bp) and UK Gilts 1.13% (-1bp).