Market Talk- October 9, 2018

Shanghai opened marginally weaker, but was either side of close for the balance of the day. Fortunately, the index did close with a positive a marginally positive print whilst the currency managed to behave itself. There is talk late in the European session that China was playing in the FX market – selling US Dollars, which took most currencies off of their days lows. Also reports that China is selling some overseas property whilst still aggressively bidding for year end dollars. Late in the US trading day the CNY looks to be little changed at 6.9225. The Hang Seng spent much of the day positive only to dip at the end. Tech and real estate stocks weighing on confidence yet again. In Japan the Nikkei opened weak and remainder there for the day, closing -1.3% off. The Yen has been bid given the Asian uncertainty and is still playing around the 113 figure level. The SENSEX looked to be bucking the trend at the open, but was soon dragged back into the mix. Closing on the lows of the day, off -0.5% the INR remains a major concern. The Rupee remained around mid 74 and only managed a slight recovery once China pushed on the dollar.

Much surrounded the recent Italian budget storey and the populists budget target of 2.4% deficit. Verbal blows were being exchanged via headlines, but the BTP sell-off was aggressively reversed by the end of the day. 10yr BTP’s did reach 3.71% midday, but closed 3.54% after a helping hand. This rebound helped equity markets also especially after the earlier IMF headline lower growth for this and the following years. Most core ended the day higher by around 0.25% while the FTSE MIB gained 1%. The Euro is still weak even following the rumoured FX playing. We still have some key economic data to be released this week together with G20 and WB meetings. GBP has bounced late European trading on talks of improving BREXIT rhetoric, but the picture really is building in a lot of optimism which could result in a big move if unsuccessful! Gilts cannot find a bid anywhere as they grapple with recent losses. Fixed-Income really is looking vulnerable here, any supporting growth number release in the US will escalate this decline to the next level.

Talk early in the US session that China is also selling US debt, but this could well be long dated so that they can participate in this weeks auctions. Don’t forget they have been reducing duration for a while now, and has obviously proved a smart move. One of the few trading days seen recently when Treasuries fall in yield whilst Bunds increase. US stocks recovered from early losses and closed almost unchanged. Lets see the data, but the capital flow probably speaks louder than words.

Japan 0.15%, US 2’s closed 2.88% (u/c), US 10’s 3.21% (-2bp), US 30’s 3.37% (-4bp), Bunds 0.55% (+2bp), France 0.89% (+2bp), Italy 3.47% (-9bp), Turkey 19.64% (-19bp), Greece 4.53% (-5bp), Portugal 1.97% (+1bp), Spain 1.60% (+1bp) and UK Gilts 1.71% (+4bp).