Market Talk – May 17th, 2017

While money managers and investor around the world discuss, if this is a game changer or not, one thing is for sure – its a reason to spike volatility! The VIX has gapped 20% (12.70) in early trade as the DOW declined over 250 points and by the close was up 39% at 14.75 (did touch 15% but was a high print. The flight to safety started in early Asian trading on reports a memo (written by James Comey) that President Trump requesting Comey drop investigations to derail or slow investigations into Michael Flyn. Either way, markets hate uncertainty and so we see a rush into JPY, Fixed-Income, Gold and Europe (especially having seen Macron’s victory two weeks ago). Quite frankly, investors in Europe were looking for any excuse to move back into Europe and the events of the past two days have provided that on a silver platter. Given the severity of these news items it would be extremely difficult to see through them in search of the bigger picture or whether this really is a game changer or not. You can guarantee the news headlines will not disappear anytime soon.

Asia started with declines between -0.25% and 1% but have obviously weakened further since the US cash markets opened. Yen was last seen breaching new lows with a 110 handle. Many are talking late in the day whether this should actually hit global stocks or if this should remain US centric. One Chinese proverb states, “The mountains are high and the emporer is far away” springs to mind.
Europe followed the theme with losses of between 1% and 2% in a broad based sell-off. The cash markets manage to catch half day of US cash trading but we had not seen the days low for US stocks at that stage. In late trading the DAX futures are around 1.75% lower. Financials and Auto’s were the worst performers following talk that the EU is rumoured to be bringing action against Italy over the failed policing around the emissions saga. Bonds were where much of the money was funded today but then also a build up in cash is to be expected.

The largest down-day this year with losses for the DOW and S+P of -1.4% and -2.6% for the NASDAQ and Russell. Financials were hurt across the board with Bank of America lower by over 6%. Tech’s contributed to the sell-off with Apple down around 3.5% but considering it is still up 30% YTD, it is doubtful many will be that concerned just yet. At the close the DOW makes another attack at the lows -370 points. Should the market start to rethink the June FED move now – probably a little early for that just yet but worth keeping an eye on what others think.

Treasuries rallied with the curve flattening pushing 2/10 flatter by 5bp to 97bp. Gold has rallied $25 (2%) to $1260 with oil also trading firmer.
US 2’s were last seen 1.25%, 10’s 2.22%, 30’s 2.90%, Germany 0.37% (-6bp) which closed the US/Bund spread at +185bp (-2bp). France 0.83% (-6bp), Italy 2.14% (-8bp), Greece 5.59% (+0bp), Portugal 3.17% (-9bp) and Gilts 1.07% (-6bp).

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