Market Talk – May 22nd, 2017

The solid close to US trading on Friday fortunately had more influence than the concerns surrounding the weekend missile test completed by North Korea. The safety bid appeared to be lost in early trade as we watched the JPY lose ground first thing trading 111.60. Despite the marginal performance of the yen the Nikkei joined the core rallying for the day. The opening wobble was short-lived and saw strong demand coupled with volume as prices were lifted the rest of the day. Closing just off the highs a strong +0.45% on the day. The Hang Seng, KOPSI and SENSEX saw similar trends closing higher (India positive on tax talks, despite being too complicated) but did see intraday highs earlier in the day. ASX was the best performer closing +0.75%. Talk that China may receive some positive news from ratings agencies for on-shore bonds helped secure some positive flow into the market. Probably early days just yet but that’s the rumour.

Europe had the opposite reaction seeing better markets in the morning, then followed by slow weaker prices in the afternoon. Comments from Angela Merkel that the EURO was too weak certainly lifted prices but for what appeared the wrong reason. The sentence was referring to the reason German had performed so well against an ailing rest of Europe. She was implying the currency was “too weak” for German whilst comfortable for the balance of the region. This took prices up to six month highs (1.1260) but drifted a little in late trade. The ECB meets next again on June 8th with many market makers feeling a change in the rhetoric suggesting further QE relaxation. As President Trump starts his world tour many are headline watching for any hints of a market moving comment. Not really made headline news but late in the day there are a few concerns that the Greece settlement has yet to hit screens. This maybe under the radar at the close but if this does not go through it will certainly hit the recent Euro strength together with all peripheral bond spreads. German Bunds continue under pressure as the US yield continues to narrow.

Confidence built as the US markets opened and positive reports came-in surrounding President Trumps Saudi announcement. The broad based rally grew as the day wore-on but it was as the DXY continued to drift. News that Former National Security Advisor, Michael Flyn, will not cooperate with congressional subpoena. The psychological 97 level was broken and we finished around 96.88. Ford was a major mover closing up 9% after news with volume over 3 times its 30 day moving average. Oil helped sentiment closing up near $51. Chicago Fed dipped a little from 0.08 to 0.07 but we await FED speakers later in the week. In after hours news there was talk Brazil’s credit rating maybe cut. Apple says late that they expect market cap to exceed $1trn. US banks been large issuer of ETF’s – probably just feeding demand; currently BOJ owned over 65% of ETF’s.

2’s closed 1.28% (+0.05bp), 10’s at 2.25% (+1bp), 30’s at 2.91% (+1bp), Bunds 0.39% (+3bp) which closes US/Germany spread at +186bp (-2bp). France 0.84% (+4bp), Italy 2.12% (u/c), Greece 5.49%, Turkey 10.42% (-13bp), Portugal 3.10% (-4bp) and UK Gilts at 1.09% (+1bp).