Market Talk - August 10th, 2017

Although Asian core all closed lower it really wasn’t that bad – at least in the Asian cash time zone. The JPY traded above the 110 level as cash rebounded at the close but then saw the late safety rally (US time zone). It was the large cap Hang Seng that appeared nervous in late trading when sellers emerged and volumes increased slightly. The index closed over 1% lower with real estate, financials and insurers leading the decline. Japan’s economic data releases were not that encouraging either after machinery orders fell more than expected, but it was US’s Tillerson comment that supported the market. Secretary of State Rex Tillerson said that the US is engaged in a very active debate with North Korea which the markets took as very encouraging and is easing tensions. Core Shanghai lost 0.4% but many were talking that the currency is trading its strongest level since October 2016. SENSEX has also joined in this retrenchment with a close today down -0.8% as money is taken off the table given the uncertain outlook.

Looks like it took a day to digest and then markets realised the severity of the situation, or the lack of liquidity in a summer market! All European core traded weaker today with losses of around 1.25% for the DAX and IBEX with the UK’s FTSE off 1.4% but saw CAC just -0.6% lower. The UK had weaker data than expected industrial output in Q2 explained by lower car production (-6.7%) the worst since 2013. In Germany it was the banks and industrials that lead he index lower with Deutsche Bank falling over 3%. Late in the US trading day futures are drifting lower in sympathy with US market declines. Interesting that the European markets have suffered the most in this decline, probably giving back the first seven months bounce. The money flow appears to still be moving to the USD. Don’t forget though this is still summer trading and is traditionally a poor month, but will make autumn even more interesting! Europe has been getting a little rich recently and was talked through earlier when lesser credit bonds (BB’s) were noted to be trading level yield – or even through – US treasuries.

US weaker across all indices and most sectors. Retailers, banks and miners lead the fall but better than recent but still thin’ish volumes. NASDAQ is off over 2% but probably expected given its recent impressive run. As you would expect we have seen a large percentage rally (40%) in the VIX with last traded price around mid 15. We are seeing the safe-haven into treasuries and gold (+1% at $1291 last) and watching as early gains in oil were turned in the last couple of hours trading (last down 2% $48.50). CPI in the US tomorrow so could be an interesting end to the week.

2’s closed 1.33% (u/c), 10’s 2.20% (-5bp), 30’s 2.78% (-4bp), Bunds 0.41% (-3bp) closes the spread +179bp (-2bp). France 0.71% (u/c), Italy 2.02% (+2bp), Greece 5.42% (+2bp), Turkey 10.51% (+2bp), Portugal 2.80% (+2bp) and UK Gilts 1.08% (-3bp).

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