Market Talk – Thursday, Oct. 18

A weak session for much of core Asia, with almost all markets falling from the opening. Sadly, it is China that leads the way down again. Many are speculating that it is in relation to the FED Minutes and their continued appetite to raise rates which pressures all currencies favoring the USD. The Shanghai index traded weak all day and even closed on its lows down almost 3%. There is a lot of talk of large USD Call Options being bought at the 7 and 7.2 area, as the CNY plays with the 6.94 region. As the defense appears to be unrelenting so the pressure builds on stocks, but all eyes will be on the GDP release tomorrow. The Nikkei saw a similar pattern with prices dropping throughout the day. Investors are being schooled on capital flight and is exactly the opposite to the late 80’s/early 90’s when cash was pouring back home. Interesting that the Yen is losing its safe-haven status and fears that we see a huge trade-off cannot be ruled out. The SENSEX was closed today but still sees its currency lose small money in thin volume.

Europe held steady for much of the day, but then the constant frustration over Italian, Spanish and Portuguese budgets together with BREXIT headlines continue to scare markets. The possible BREXIT delay just proves to spook fears as uncertainty is one thing markets hate. Sterling was hit and eventually partnered by the Euro as Dollar strength continues to demand attention. these fears spread to the peripheral bond markets where Italian BTP’s and Greek GGB’s lost 14 and 12 basis points respectively. This move has taken 10yr BTP’s wider by 90bp over the month to 3.68%. The BTP sell-off also hit Italian bank shares on fears of a possible downgrade following the budget proposal and talk that investors are moving money out of the country. The EU requested more of an explanation late this afternoon resulting in further selling. Given so much worry and concerns about both short and long-term future large ticket items are grinding to a halt. The purchases of real estate and even autos are declining almost monthly and this is having a negative impact on the industries related. Volumes are dropping markets are declining, the absence of fresh money will exaggerate these price movements and just shift the burden onto clearers as margins are increased. When faced with these conditions I would consider trading half my normal size and double my stop limits.