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Market Talk- September 25th, 2017

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As you would expect the topic conversation this morning has been the German election and the re-election of Angela Merkel. The highlight was always going to be the percentages of the peripheral parties and that is what we saw. Markel’s CDU party was the big loser yet retained victory for the fourth time. This result for the AfD Party (Alternative for Germany) wins them the right to the German parliament for the first time and establishes them as the third largest party after the SPD. Although significant news it was overshadowed in Hong Kong by the official tightening of housing restrictions (EG – Banning re-sales within a two/three year period). The decline in property companies was the main reason the Hang Seng declined near -1.5% today. Elsewhere the Shanghai index drifted lower closing 0.3% lower whilst the Nikkei and ASX both closed better. In Japan the geopolitical risks eased after a quite weekend and in late trading the Yen continues to drift weaker, now down -0.3% trading mid 112’s.

Even in Asian trading the Euro bore the brunt of the poor Conservative result for Merkel’s party. The bid did appear for GBP, even following the downgrade late Friday but, that was not to last. By close of the European trading session both the Euro and Sterling had suffered losses in favour of the USD. Towards the European close we heard the statement that North Korea accused the US of declaring war against them – and that they “feel” they have the right to shoot down bombers. Gold rallied $15, the USD gained more ground against the Euro (+1%), Treasuries rallied (yields falling) and oil rallied 3%. Most core markets had already closed with little change on the day, but the futures have reacted negatively in the US session. Worth keeping an eye on sterling this week as we begin the next round of BREXIT talks.

US stocks were lower from the open with tech (Apple and FB) weighing on both sentiment and price. The NASDAQ led the decline falling over 1% almost from the opening bell, after a brief pause it was back in profit-taking mode until the close. Will be keen to see the closing numbers this Friday as it is Week/Month and Quarterly close. In the final hour of US trading we did see a small recovery and even managed to recover much of the days losses. The talking point for Asia will be N. Korea but also worth mentioning the decline in the Euro, especially after the election result failing to offer a vote of confidence – which was a similar story in the DAX price action earlier today.

2’s closed 1.42% (-2bp), 10’s 2.22% (-3bp), 30’s 2.76% (-3bp), Bunds 0.4% (-4bp) closes the US/Germany 10yr spread at +182bp (+2bp). France 0.7% (-3bp), Italy 2.10% (u/c), Greece 5.48% (+3bp), Turkey 10.75% (+5bp), Portugal 2.40% (+2bp) and Gilts 1.33% (-2bp).