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Market Talk- November 20, 2018

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The 3% decline in the NASDAQ and the 1.65% fall in both the S+P and DOW continues to nerve global markets and today was no different. Technology indices are affected across the globe, but then they have been the hot topic for a few years now. In Asia it was no different today with China core indices losing ground. The Shanghai index fell 2% led mostly by tech but also retail is not that far behind. The Hang Seng is also influenced by tech but has real estate is adding to the concerns. Core indices opened weaker and failed to see any kind of bounce. Much of the talk is fear of fresh money entering the markets and the cash liquidations continuing. These core markets are over 20% lower for the year, with many concerned the lows are not yet in. The Nikkei held a little better, falling just 1% today and is helped a little by the resilience of the Yen. Although money is leaving peripheral markets, it is interesting there is no flight to quality into their bond markets. Much of the Nikkei loss was credited to Nissan’s decline following the arrest of its Chairman for financial misconduct. The SENSEX and INR are holding-in well, but this is credit related to the price of oil rather than anything else. The market is responding well to talk that the government and the RBI’s relationship is warming, but then money continues to leave in favour of US Dollars. Late there are rumours that US President Trump wishes to talk with China, but we have heard this far too often! We will probably have to wait until next weeks G20 for more constructive guidance on this topic.

Europe followed Asia’s weakness and again is led by technology and financials. Much talk of yesterdays headline that Spain would reject the BREXIT terms and that is being reflected again in both the Euro and bond markets. Meanwhile, UK Prime Minister Theresa May appears to be fighting battles on both domestic party alliances. Sterling looks to be treading water in the low 1.28’s while the Euro looks to be hit on any bounce. Uncertainty in Europe for growth, regulation, legislation and politics is supporting the move away from the region and again in favour of US Dollars. Supporting this move is that fixed-income now finds it difficult to rally when we see this kind of equity weakness, whilst in Treasuries the demand still exists. Economic data and confidence is not supporting Europe at a time when this aid is required. Worth keeping an eye on the old US/Bund spread as this looks to be back in play. European peripheral spreads should also be watched as these too look to be waking after years of one-way movement. G20 next week and the friction within Europe could also grab some headlines which will highlight risk that has been ignored for a while due to the “official” supporting bid.

US markets resumed yesterday’s sell-off and again found focused on tech – the NASDAQ – and energy. The DOW was off nearly 600 points (-2%) in the opening minutes, but then found some support from there. Probably not surprising was that the tech sector finally found some support, but then it is off nearly 15% from its years high prints. Retail sector are seeing fears as results continue to miss expectations. Apple stock heads responsibility for much of the decline, having declined 20% from its high, but is still up 5% on the year. Energy stocks tumble as TWI trades low $53’s. The bright spot remains the US Dollar following super strong US data. The dollar index awakens and is heading back to the 98 level. The Treasury yield curve is back in flattening mode, as the strong data expects the FED on focus whilst the long end sympathizes with the lack of growth and unseen inflation. The growth slowdown continues which competes with the capital flow into the USD. Interesting the VIX remains below the 25 level, but probably because the selling is focused in ETF’s and few people are long reducing the needs to hedge. The slowdown in growth also explain why Utilities are holding in so well.

Japan 0.10%, US 2’s closed 2.80% (+3bp), US 10’s closed 3.06% (+1bp), US 30(+82bp), Greece ’s 3.31% (-1bp), Bunds 0.35% (-2bp), France 0.75% (-3bp), Italy 3.61% (+2bp), Turkey 16.82% (+82bp), Greece 4.64% (+12bp), Portugal 1.98% (u/c), Spain 1.64% (-1bp), UK Gilts 1.38% (+1bp).