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Market Talk- September 18, 2018

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The much anticipated and some would say, over expected, tariffs were announced after the US markets closed yesterday (Monday). The DOW had already dipped over 100 points, whilst the NASAQ closed 1.5% lower. It is often the case in markets that the news is more fearful than the act and that is what we saw today. Asian indices were weaker at the open but then spent the balance of the day bouncing from the lows. Often it is the fear of the unknown rather than the event, once events are known actions can be taken. The additional $200bn worth of tariffs is added to the previous $50 and the 10% could increase to 25% by end of next quarter. Core Shanghai eventually added a near 2% by the end of trading, whilst the Hang Seng returned 0.5%. The Nikkei reopened after yesterdays holiday and that joined the rally, managing to make headway from the opening bell. Closing near 52week highs, all eyes are now on the currency. The Yen continues to play around the 112 level even though trading volumes have been thin recently. In India the SENSEX has been suffering from lack of capital flow, which continues to see the INR drift. The one-year forward price (August 2019) is over the psychological 75 level, which is around 225 pips over spot. It is worth keeping an eye on this spread as a confidence gauge, especially if rate rises are seen purely as currency protection. This may come in handy if they do eventually extend the Indian trading hours.

It was more a concern of currency and bonds in Europe as dealers looked for markets direction. Both the Euro and GBP were under pressure following President Trumps announcement as fears the FED will act now. Core European bonds were a touch lower as US yields move higher, especially 10yr notes that broke above 3% again. Gilts were weaker today following the IMF, the Chancellor, Mark Carney, Theresa May and Michel Barnier all fronting their own views. 10yr Gilts broke the 1.5% again closing this evening at 1.57% having added a further 4bp today. Late US 10’s are comfortably north of 3% (last 3.05%) so will interesting to watch tomorrow. Most core indices closed around unchanged but whilst the CAC and FTSE are comfortable at their mid 52week range the DAX is in the lower quartile.

Futures trading in Asian hours had the US indices making ground even as the US and China play tit for tat with tariff statements. China has responded with its own $60bn announcement, but appears to have downplayed the percentage after reducing the initial from 20%. Tech rebounded, as did exporters, but added to this Netflix and the Unum Group and we see some strong returns. By the close both the DOW and NASDAQ had added 0.75% return whilst the S+P and Russell rallied +0.5%. US bonds are selling-off with 2’s up at 2.80% and 10’s 3.06%. Also, worth mentioning that we are starting to see some steepening of the curve at last.

Japan 0.11%, US 2’s closed 2.80% (+2bp), US 10’s 3.06% (+7bp), US 30’s 3.20% (+9bp), Bund 0.48% (+2bp), France 0.78% (+1bp), Italy 2.78% (-6bp), Turkey 18.18% (-12bp), Greece 4.04% (+4bp), Portugal 1.84% (+2bp), Spain 1.50% (+2bp) and UK Gilts 1.57% (+4bp).