Market Talk- May 16, 2018

Martin Armstrong Armstrong Economics

The turn in energy prices and the rise in bond yields has started to affect global equity markets once again. In yesterdays US trading, treasuries opened weaker and just kept nudging higher. US Tens hit 3.095% which will also apply indirect pressure on Europe and EM bonds. The question is, was this the reason we saw equity markets wobble and if so, do stocks trade back up if the bond rout stops! Is it the fear that forced the equity weakness or is it money flowing out of fixed-income yet into stocks. We should keep a watchful eye on currency movements as the demand for USD continues to run, EUR/USD at YTD lows. The Italian BTP paper is widening out, with 10yrs paper losing 17bp today. A thought worth keeping at the back of your mind is, if they can’t hold Italy in, they will not hold Europe. The Italian Bond market is far too big to let slip, this will have huge implications for Bunds and OAT’s and all the periphery if it really starts to widen out.
The Italian index (FTSE MIB) lost over -2.3% in todays trading with many cashing-in on what they can. In troubles times like this the managers will sell what they can and not what they should! There will be bargains to be had, but make sure the currency is hedged as this will have far reaching ramifications. The Euro was down around -0.6% at one stage this morning, but have bounced from those levels by the close (-0.25%) although remains weak over the longer term.

Interesting that by the close of US trading US 10’s played around 3.10% again, yet core indices all bounced from yesterdays levels. Is it the fear of higher rates that wobbled stocks or is the market finally changing the way they view rate/stocks relationship? We did hear more on the North/South Korea issue and whether we still can expect calm between the two. However, Europe has far more potential to unsettle markets than Asia currently as this really has been the elephant in the room that no-one seems to want to talk about yet!

Japan 0.05%, US 2’s closed 2.59% (+2bp), 10’s 3.10% (+3bp), 30’s 3.22% (+3bp), Bunds 0.62% (-2bp), France 0.85% (-1bp), Italy 2.11% (+17bp), Greece 4.30% (+23bp), Turkey 14.11% (-10bp), Portugal 1.78% (+6bp), Spain 1.4% (+6bp) and Gilts 1.50% (-1bp).

Author

Martin Armstrong

Armstrong Economics

Armstrong pursued his studies of economics searching for answers behind the cycle of boom and busts that plagued society both in Princeton and in London.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.