Market Talk – May 26, 2017

Asian indices closed lower on the day following a disappointing OPEC announcement. The market had built-up so much expectation that no-reduction was necessary to avoid the dissatisfaction that eventually matured. However, that said the majority of talk early this morning was around the PBOC playing with the currency and also talk that a little intervention in equity markets may also have been rumoured. Since Moody’s downgrade earlier in the week there have been speculation that the market had a better bid than previously but given there has been no official announcement, one just suspects there may have been a helping hand. There are considering a move to the Yuan mid-point fixing with much talk that they may consider moving back to a USD fix and away from the basket approach. Much is discussion currently but it is worth considering that many domestic corporates have issued vast amounts of USD debt recently. All this confusion just unsettled conditions, which had more of an impact as we head into a long weekend for many exchanges. Oil bounced a little (+0.3%) which is very disappointing after yesterdays 5% decline. The Yen rallied again, on the apparent flight to quality but saw the Nikkei decline -0.6%. ASX was also weak after energy and commodity prices were hit.
All future core European bourses declined today with IBEX falling the most (-0.3%); FTSE on the other hand found a bid but probably on the back of a weaker currency. Overnight it was reported that the gap between Conservative and Labour parties had narrowed, which had a very negative effect on cable. The markets fears a Labour government probably due to excessive spending trends. However, the net result was that GBP fell over 1% trading at one stage down to the mid 1.27’s. Much of the weekends press will be centred on G7 but we are also close to UK elections and BREXIT negotiations. Next week we have month end which could provide some projections for the summer months. Gold has seen a solid bounce the past couple of days closing this evening around the $1267 level.
US markets saw more record highs and saw record closes for the S+P and NASDAQ. The sectors leading the charge were Consumer and Utilities, whilst Energy and Banks dragged on advances. Both S+P and NASDAQ have advanced over 1% this week hitting record closes after seven positive sessions. NASDAQ performance has been extremely impressive this year with gains of over 30% YTD (Netflix, Amazon, FB etc.) but then the whole Technology sector is up by around 20% across the board.
US 2yr notes closed 1.30% (+2bp ), 10’s closed 2.25% (u/c) and 30’s 2.92% (u/c). 10yr Bunds closed +0.33% (-3bp) which closes the US/Germany spread at +192bp (+3bp). Italy 2.10% (u/c), France 0.76% (-3bp), Greece 5.85% (-4bp), Turkey 10.34% (+7bp), Portugal 3.11% (-5bp) and UK Gilts 1.01% (-3bp).