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Market Talk- October 26, 2017

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China saw a mixed close with Hang Seng’s fall balancing Shanghai’s gain. Talk for China however, focused on reports that China may offer a two tranche 5 and 10yr deals having been absent from the markets for a while. At a time when yields are so low one would expect rather larger deals than is rumoured ($2bn), but certainly has the potential to shake a few markets out! The Nikkei gained a little with the Yen suffering, but the big move in currencies was reserved until late in the trading day. This move was the result of the ECB’s announcement of lower but for longer. lets just jump forward to the ECB announcement and the ramifications’ of their actions.

The ECB announcement was to cut the size of their monthly purchases in half, from Euro 60bn down to 30bn but, also said they would extend the time frame until at least September 2018. The effect on the bond market was positive, in the knowledge that the buyers continues beyond the date. The treasury market went with the move resulting in a flatter curve. The front end remained focused on what the FED is still expected to do, and so we saw 2/10’s flatten around 2bp on the day only to drift late in the day. The move was negative for currency which reflects positively on equity markets. DAX, CAC, IBEX and MIB were all up around 1.5% while the UK’s FTSE added just +0.55% (not bad given the Retail Sales number). The Euro lost 0.65% with GBP down -0.45% on the announcement. Given the bond move financials (Banks) were hit but they were already trading heavy after Barclays numbers were lower than expected; Barclays stock was down more than 7% at one stage. The markets do seem to be comfortable taking this announcement in its stride, but you would be well advised to keep a very close eye on the currency going forward. With the Euro decline turning more serious late in the day (-1.5%), international buyer will be questioning the logic of holding sub 1% paper with the currency falling!

Money continues to move into the US markets, with most indices trading positively. NASDAQ did turn mid-morning whilst the DOW and broader S+P were pruned around the highs. Twitter and Ford beat street expectations but it is not surprising the NASDAQ has been shaved as we await some big name earnings after the bell (Amazon/Microsoft/Alphabet). Markets are still running hot but that’s what can happen when you see capital concentration. Next FED Chair still up for discussion but rumours favouring Taylor.

2’s closed 1.60% (u/c), 10’s 2.42% (-2bp), 30’s 2.93% (-2bp), Bunds 0.44% (-4bp), France 0.84% (-4bp), Italy 1.96% (-6bp), Greece 5.45% (-3bp), Turkey 11.55% (+17bp), Portugal 2.24% (-2bp), Spain 1.54% (-9bp) and Gilts 1.39% (-1bp).