Market Talk- April 16, 2018

The main talking point in Asian trade today was the Hong Kong Dollar seeing another test of its upper band (7.85). The currency has been pegged between 7.75 and 7.85 since 1983 and has remained within that range since 1985. Today was the fifth time in three trading days that the HKMA (Hong Kong Monetary Authority) has had to step in to support the currency at 7.85. One of the reasons for the test is the recent divergence in interest rates and in economies. The HKMA has stated they are prepared to step in again but as history tells us – they will eventually be forced to step away. Both the Shanghai and Hang Seng indices lost around 1.5% today, which is probably the result of people taking risk off the table as capital flow starts to increase and also weighed by recent trade numbers. However, not worth worry too much over the Trade numbers once you see the uptick in Treasury purchases! Interesting that the Nikkei, ASX and SENSEX all performed as their respective currencies lost ground, probably see much more of this in the weeks ahead.

Although much of the talk surrounded the weekends events in Syria, it was also about the large advertising agency WPP. Shares in WPP lost 6.5% today, which puts it down around 30% on the year and with its CEO (Martin Sorrell) announcing his resignation last Saturday. UK’s FTSE was weak from the opening bell as the currency rallied whilst on the continent early gains were quickly lost as the DAX and CAC both turned lower. Wednesday could be interesting when we hear results of UK PM Theresa May’s EU withdrawal Bill. This was the key reason Sterling rallied today with much now priced-in. The Euro did manage a positive day which is pretty much reflected in the equity declines but, added to that is the capital flow and reverse trends as Wall Streets strength was not enough to lift Europe out of the dull-drums.

Easing US tensions and better than expected earnings lifted US equities with all core showing no signs of retrenching. Much is being built in to earnings expectations but so far these are being met. We still await inflation surprises even as the treasury market start to raise its own rates. The curve is flattening again as values are led by frontend weakness.

Japan 0.04%, US 2’s closed 2.38% (+2bp), 10’s 2.83% (+1bp), 30’s 3.03% (u/c), Bunds 0.52% (+1bp), France 0.75% (+1bp), Italy 1.79% (u/c), Greece 4% (-4bp), Turkey 12.77% (+6bp), Portugal 1.62% (-1bp), Spain 1.23% (+1bp), and Gilts 1.46% (+3bp).

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