Market Talk – September 14th, 2017

We really needed some data to support recent Asian moves and sadly that was not fourth coming today. China’s numbers missed on Investment, Industrial Production and Retail Sales so should be no surprised we reversed recent gains. Investment was expecting a number north of 8 (actually looking for 8.2) but was released at 7.8 for H1. Industrial Production anticipated 6.6% came-in at 6, whilst Retail Sales fell short at 10.1% with expectations of 10.5. Both the core Shanghai and Hang Seng closed weaker at -0.4% and -0.45% respectively. The Nikkei also drifted in quiet trade, closing down -0.3% with the yen in a tight mid 110 range. SENSEX, ASX and NZX all small down. We stated Sept 8th that China was making moves against Bitcoin and that is still playing out today with a 13% decline today and down 25% on the week.

With the exception of the UK, Europe had a relatively quiet day today. The DAX, IBEX and CAC all finished little changed with most of the talk centred around the Bank of England’s MPC meeting. The result was as expected 7:2 but the Gems spotted the shift in language and decided enough is enough – see yields starting to run. The 10yr Gilt gained 9bp after the news taking the yield to 1.23%. This will start to have an impact on Euro-govy paper also as the spreads are now in play. GBP liked the news gaining around 1.5% on the day, which will also pile the pressure back onto the ECB as leaves them purchasing paper way into negative carry plays. Players will be lining-up to arb the ECB if they are not already doing it. FTSE had the opposite effect and we watched that lose 1.2% as a result. If this rally in sterling continues we will most likely see foreign selling of London property as the FX makes-up for some of the recent short falls.

US data released better than expected as the CPI rose 1.9% (expected 1.8%). Much of the talk reflected the UK’s reaction to the change in rhetoric and that has started to be priced into treasuries. The DOW continues to push ahead although we did see a small reluctance in both the broader S+P and the NASDAQ. The North Korea situation seems to be on the boil again with reports that they could test another missile soon. Volumes are light and the market feels it is in a wait location with many players still on the side-lines. A correction is still talked of for next week and could well be on the cards now that the bond markets may be back in play again. Gold gained a bid ($10 now around $1332) with oil also breaking the psychological $50 mark. Lets see how the numbers are for Fridays close but mood amongst traders appears flat at best and fragile at worst.

2’s closed 1.36% (+1bp), 10’s 2.20% (u/c), 30’s 2.78% (-1bp), Bunds 0.41% (+1bp), France 0.69% (+1bp), Italy 2.05% (+2bp), Greece 5.32% (-3bp), Turkey 10.45% (+7bp), Portugal 2.77% (-1bp) and Gilts 1.23% (+9bp).

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