Even as Chinas trade expanded, it really has done nothing for stock market confidence or sentiment, especially after the poor auto sales numbers. We saw more selling pressure today as the Shanghai core index closed 1.4% lower, with the Hang Seng under even more pressure resulting in a 2.4% decline. Money is still leaving the emerging market space and even the currency is experiencing the pressure. The CNY is again challenging the higher levels seen recently, but is yet to breach the psychologically important 7 handle. Rumours are that CNY Put Options north of this number have been extremely well bid recently and talk that a lot has been spent on its defence – price movement looks to back these rumours. In Japan the Nikkei was also lower as tech, energy and basic resources all adding to the 1% decline. Again, worth keeping a watchful eye on the Yen next week, as again we have failed to see a safety flight given the recent regional uncertainty. The SENSEX held in well for much of the day closing with just minor losses. Despite the concerns raised by Moody’s, upcoming 2019 elections and a weakening currency the India market and currency have held in reasonably well – so far, but has been benefiting from the oil price decline.
Although Europe was quiet it was lower initially in sympathy for global markets but then found old issues repeating. The Italian Treasury have announced they have no intention of shrinking its budget demand, mostly responding to the comments made by the EU on Thursday. Italian 10yr BTP yields were a touch wider whilst core Bunds tightened 5bp as the flight to safety still exists in Europe; FTSE MIB closed down 1%. BREXIT was again hitting headlines in late trading, after the UK Junior Transport Minister Jo Johnson (brother of Boris) resign from office claiming Theresa May was not following what the people voted for. Both GBP and the Euro lost ground on this resignation but Sterling lost most – last seen down -0.75%.
US market are being dragged into the global slowdown which is supplying more wild swings. The ETF volatility is proving more volatile than the underlying cash market. It is interesting that the VIX is hardly seeing any movement nor are options that much in demand. The talk is that this is still the most hated bull market in history and very few people own it. If longs are not that large, why would you expect to see the demand to hedge! Oil is declining as demand lags, gold is being sold to raise cash (especially as the US Dollar rebounds) and so we have the USA performing against all the others. The PPI data released way better than expected and builds anticipation for next weeks GDP announcement. Stocks did manage a bounce ahead of the close but it really is the USD we should be keeping an eye on, as Asia continues to underperform.
Japan 0.13%, US 2’s closed 2.92% (-4bp), US 10’s closed 3.18% (-6bp), US 30’s 3.39% (-4bp), Bunds 0.40% (-5bp), France 0.78% (-4bp), Italy 3.40% (+1bp), Greece 4.34% (+5bp), Turkey 16.62% (-19bp), Portugal 1.94% (+1bp), Spain 1.59% (-1bp) and Gilts 1.49% (-7bp).
