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Market Talk- October 12, 2018

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A much welcomed relief rally seen in Asia today, which was a refreshing surprise given how most opened. China did publish the best trade export numbers toi the US in sometime, but is being negated by the storey US firms maybe front-loading imports in fear of increasing trade tensions. Steady progress was made from the opening with both the SENSEX and Hang Seng both recovering over 2%. The HSI was tech led and probably reflecting the outperformance of the NASDAQ seen Thursday. The SENSEX was doubly beneficial for foreign holders as the INR also managed a 0.6% bounce (last seen mid 73’s). The Shanghai saw a wobble just ahead of lunch pushing the index almost 1% off, but managed some weekend book-squaring resulting in a 1% gain for the day. However, In late US trading this evening we see early equity strength finding it tough going and the safe-haven into the weekend is in play. The Yen is still close to its highs of the day (111.90) which reflects sentiment into next week. Fixed-income markets are bid but corporate, Leveraged Loans and peripherals are still finding it hard going. Quick note on the slide of the A$. This does not look as though it will recover anytime soon! The decline over the year remains heavy and given Asian (especially Chinese) markets show no signs of recovering, it still looks the right trade selling bounces.

The general theme for European trading was positive. The DOW futures were reflecting a 300+ point higher opening, but that was not quite what we saw. All early gains were retraced resulting in negative closes across the board. Both the Euro and GBP lost ground to the Dollar today, with Sterling down a little over -0.6%. Top stories remain Italy and BREXIT, but with Gilts tightening 4bp whilst BTP’s lost another 3bp. Europe really just seems to be playing between the two powers US and China. Asian equity markets have clearly underperformed this year while US indices have been hitting new highs. Europe did reasonably well early in the year, but has now firmly sided following Asia lower and a trend also not likely to end anytime soon. Capital continues to leave Asia and Europe in favour of the US and is rapidly accelerating. Next week we have EU Council Meeting where they will be debating BREXIT and Italy so keep an eye on currencies for direction.

A roller coaster ride for all core indices today as they jostle for position for the weekend. We did see the DOW lose early gains and even print negative before closing up +1.15%. Again, the best performer was the NASDAQ with a solid +2.3% bounce. However, on the week the DOW has lost 4%, so there is a good chance we are not out of the woods yet and more volatility can be expected next week. The VIX has had much publicity this week trading from sub 8% to over 25! However, worth noting that the forward curve remained relatively stable and just inverted upon the 25 print. The big bank names reported better than expected numbers, but we have more due from the others next week.

Japan 0.14%, US 2’s closed 2.85% (+1bp), US 10’s closed 3.16% (+2bp), US 30’s 3.34% (+3bp), Bunds 0.50% (-2bp), France 0.86% (-2bp), Italy 3.57% (+2bp), Turkey 18.28% (-81bp) – Political tensions easing following the release, Greece 4.36% (-9bp), Portugal 2.03% (+2bp), Spain 1.67% (+3bp) and UK Gilts 1.63% (-4bp).