Market Talk- October 29, 2018

Much of the early Asian talk surrounded fears we would see a continuation of last weeks weakness, but from external rather than internally led . Despite the fact that Chinese indices are off 25% YTD, the weakness seen in Europe and the US is still impacting an already weak Chinese market. The late news of Friday that Italy survived another re-rating certainly helped confidence, whilst the widely expected Brazilian political result had negligible impact. Headlines of US/China trade talks were sadly absent, but would have been most welcomed especially as the Yuan was also looking vulnerable towards the close. In late trading it flirts with the 6.97 level with the whole market focusing on the 7 big figure handle! HSBC was the key release that helped the Hang Seng as the stock rallied over 5% upon solid Q3 results. Worth keeping in mind however, that the HSI remains on its 52-week low. China did announce plans to cut 50% cut in car purchase tax after the market close, but this helped the DAX on a day when they probably need it given Sundays election results. The Nikkei opened higher but could not hold its gains closing slightly lower on the day. The currency is the one to watch as the Yen has traditionally acted as the flight to safety. This seems to have lost its position recently and looks to be as vulnerable with other Asia currencies. SENSEX responded well to talk that the RBI plans large liquidity injection buying in the region of 400bn Rupee (Around $5.5bn) in the month of November. The INR surprisingly only lost -0.4% now around 73.40 in late US trading; early days yet.

The elections that took place in Germany had little impact initially as people just assumed they had until 2021 until Angela Merkel at the helm. However, markets are already starting to question, “Who’s next”? The China news headline concerning the car tax certainly helped the DAX and had a knock-on effect on sentiment. This has eased some of the nervousness that surrounded Sundays vote, but HSBC’s result provided a helping hand (its shares rallying over 5%). Confidence did improve during European trading hours, but the late turn in US markets will have a significant impact upon its open tomorrow morning. The UK held its Autumn budget today, the last before the BREXIT event. Many were questioning the validity of this event ahead of such a controversial date. Although Mr Hammond called the end of austerity, its remains a looming declaration with so many unanswered questions. Certainly looks as though they are doing nothing until after the date and they know if the UK is in or out! It begs the question – “What have they doing for two years”; other than crossing their fingers and hoping its all goes away!

Guess we just have to get used to 1000 point daily trading range this quarter! The early 350 point DOW gain was reversed on fears of escalating US/China trade tensions. At one stage the DOW was down 500 points, a swing in excess of 850 point. Some of the large tech names have lost a large percentage of their summer high prices as liquidation and fear searches for the next bid price. October is a pensions fund rebalancing month and so coupled with the timing has probably been more unbalanced than many would have estimated. The Trade news seemed to really hit the market with a scare, but the signs have been there for a while now. China seemingly letting the currency edge towards the 7 handle, closer trade ties with Japan, relaxing of auto purchase tax and a more defiant rhetoric concerning upcoming US talks implies China will bargain harder than many currently believe! Stocks did bounce off of session lows and all this seemed to happen within the last two hours of trading. We have month end on Wednesday and payrolls on Friday, so maybe Monday is just a taster of what we have in store for this week!

Japan 0.10%, US 2’s closed 2.81% (u/c), US 10’s 3.08% (u/c), US 30’s 3.33% (+1bp), Bunds 0.38% (+3bp), France 0.74% (+1bp), Italy 3.33% (-11bp), Turkey 17.66%, Portugal 1.86% (-4bp), Spain 1.54% (-2bp) and Gilts 1.40% (+2bp).