Asia took its cue from the strong US session and initially saw gains across the core. The Nikkei made-up for its previous poor performance with a closing gain in-excess of 1.1% and watched as the yen played at the mid 110’s. Having seen the bounce-back, volumes were lower than usual but with national holidays in both India and South Korea trade was diluted even more-so. Shanghai and Hang Seng off sett each other but we are seeing headlines still crossing the screen surrounding China/USA trade talks. With commodity prices drifting lower as the US Dollar found renewed momentum, the Australian Dollar lost around -0.5% (last seen 0.781) whilst the ASX gained a similar +0.5%.
European market also continued to enjoy the calm simplicity of the nervous bounce with all core gaining ground. The UK’s FTSE returned the better of the bunch at +0.4% but the GBP did lose -0.8% on the day. The concerns around BREXIT persist (as they will for a while yet), but it appears we are starting to see some semi-conclusive headlines concerning trade via an interim customs agreement. DAX, CAC and IBEX marginal improvements but many markets (Greece, Italy, Poland and Austria) were all closed for holidays. Oil prices were weaker again but this time not with supply concerns but lack of decline concerns. Prices appeared to have peaked yet again but with the uncertain outlook and lack of growth we can not rule out the low 40’s as a price target.
We were expecting a better opening having watched the all geographies trade positive for most of the day, but the US cash market really had other ideas. Retail Sales released better than expected +0.6% compared to the +0.4% forecast and the Empire Manufacturing Index climbed over 25! All this has lead the market to believe the FED could well be back in play and so we saw weakness in bond markets. Don’t forget FED minutes tomorrow (Wednesday) and the weekend press will probably be a prep for Jackson Hole, so market can expect to see more headline trading over the next few days.
2’s closed 1.35% (+3bp), 10’s 2.27% (+5bp), 30’s 2.84% (+3bp), Bunds 0.43% (+3bp), which closes the spread at +184bp (+2bp). France 0.72% (+2bp), Italy 2.04% (+4bp), Greece 5.47% (+3bp), Turkey 10.58% (+4bp), Portugal 2.78% (+4bp), UK Gilts 1.08% (+1bp).