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Market Talk February 25th, 2016

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Shanghai was the talk between many dealers again this morning after we saw heavy morning selling accompanied by afternoon selling, which resulted in a 6.4% decline in the index. Financials were one of the leaders as the FX yuan mid-point rate was set lower at 6.5273 to the dollar on Tuesday and on Thursday at 6.5318. Uncertainty around global growth continues to nerve markets and after today’s fall in the Shanghai Index is down over 22% for the year. The Hang Seng was also under pressure, but not to the same magnitude as Shanghai which lost 1.6% on the day. The Nikkei actually bucked the trend recording a 244 point rally (1.4%) reclaiming the 16k level. Talk is the BOJ may look to direct asset purchasing as the next step as NIRP is debated. Late in the U.S. trading session, we are seeing Asian futures bouncing from previous losses with HSI and China 300 both higher by 1% from their cash close.

Given the Asian mood, one could have been forgiven if they expected a lower European opening. However, the mood was surprisingly upbeat and core markets opened strong. UK was lifted with a stronger Q4 GDP print (0.5% est. was 0.4%) resulting in a 2.5% rally in FTSE. Lloyds reported a 5% better than expected full year numbers. The DAX, CAC and IBEX all closed between 1.5 and 2.5% higher on the day.

Better than expected Durable Goods (4.9% estimates were for 2.5%) set the mood for the U.S. and we did not look back from there. Late in the afternoon session, we saw a healthy 3% bounce in the price of oil which certainly helped confidence into the last hour of trading. Dow, S&P, and NASDAQ all close around 1% higher on the day.

Gold and silver have traded in a narrow range today but the bid remains — for now! Closing on the day almost unchanged at $1234 with silver falling -0.8%. U.S. Treasuries are well bid with 10s touching the 1.7% again. The belly of the curve (5’s and 10’s) performed rallying 4.5BP whilst 2s and bonds rallied 2BP. Germany saw 10s close 0.14% closing the spread TY/RX at +156BP. Italy 10s closed 1.51% (-2BP), Greece 10.24% (-5BP), Turkey 10.46% (-8BP), and UK Gilts closed 1.36% (+1BP).

USD continues to push boundaries, especially when talking about GBP or INR. Again, these markets are drifting and both have taken out serious support later (1.40 GBP and 70 INR). We will be looking at these for month-end numbers. G20 starts tomorrow so watch screens for early clues. Also, tomorrow we see the second reading of U.S. GDP for Q4. Estimates are for 0.4% against a previous 0.7% and sales are expected at 1.1%.