Despite better than expected data from domestic China (Retail Sales 11% and Industrial Production +6.5%) it was not sufficient to support a positive close. Shanghai finished the day -0.75% as talk that Private Investment growth slowed suggesting a lack of demand for small and medium sized companies; Private Investment is the bulk of the buying groups. Hang Seng managed a small positive. In Australia the ASX was the best of the Asian core closing up over 1% as the Tech’s saw the renewed vigour supported by US closing strength. For most of the day the JPY played around the 110 big figure but poor US data has encouraged the flight to safety again and in late US trading we are one big figure stronger with a 108 handle.
Only the DAX closed positive in todays core batch with FTSE, CACA and IBEX all declining. DAX hit an intraday high at one stage up over 1% but drifted back into the close. After today close we hear from Janet Yellen at the Federal Reserve where participants will be anxiously watching for signs of balance sheet reduction. Oil inventories released lower than expected and the sell-off in energy resumed. In the UK the markets continue to wait for the UK government to reveal details of the DUP relationship but has seen good data released earlier.
Yes, weak CPI and Retail Sales but lets spring straight to the FED announcement and the markets response. FED hikes 25bp’s as expected. US treasury curve flattens (2/10’s around 79beeps), DOW bounces and the US Dollar strengthens – they were the initial responses and then stocks turned lower. After the comments the likelihood of a Sept move reduced by 20% and the VIX traded up 7% above 11.10. 2’s years by the close were back up to 1.35%, little changed on the day. Saw a similar move in the US Dollar index, DXY. Looks like the Philips Curve (Inflation linking to rates) is alive and kicking according to the Federal Reserve. Starting to normalize the balance sheet and could be soon (guestimate would be September) with hikes possible as they unwind.
2’s closed 1.34% (-2bp), 10’s 2.14% (-7bp), 30’s 2.78% (-8bp), Bunds 0.22% (-4bp) closes the spread +192bp (-3bp). France 0.58% (-2bp), Italy 1.93% (-3bp), Greece 5.68% (-3bp), Turkey 10.23% (-9bp), Portugal 2.79% (-11bp), Spain 1.36% (-5bp) and UK Gilts 0.92% (-11bp)
