Market Talk — December 16, 2015

Trading Community

An impressive performance overnight in Asia as we saw the Nikkei back above the 19k level with the 20k psychological target as the next barrier. Europe wanted to soldier on upwards but doing so ahead of the Fed’s announcement is a hesitant trading period. Most dealers were on hold, awaiting this evening’s announcement, and although everyone thought it was a done deal there is always that sector of doubt.

So, late this evening the Fed Reserve finally raised rates for the first time in nearly 10 years. The new target rate moves from 0-25 percent up to 25-50 percent with most participants expecting a majority of the trading around 0.375%. The U.S. bond market saw the 2yr note trade above 1% (an increase of around 5bp on the day); whilst 5’s and 10’s rose 5 and 3bp respectively. This puts the spread between US/Germany at +161bp (with Bunds yielding 0.62%). Interestingly, we saw the 30yr note close on the 3% level, a rise of just 4bp on the day.

The U.S. bond market saw the 2yr note trade above 1% (an increase of around 5bp on the day); whilst 5’s and 10’s rose 5 and 3bp respectively. This puts the spread between US/Germany at +161bp (with Bunds yielding 0.62%). Interestingly, we saw the 30yr note close on the 3% level, a rise of just 4bp on the day.

The Dow had been expecting this move for a few days now and reacted with a rally built-in. The Dow closed +156 points (+0.90%), S&P up 30 points (+1.45%), and the NASDAQ +75 points (1.52%).

Oil, despite a relief rally yesterday, returned to heavy selling pressure closing with WTI at $35.74 (-4.90%) and Brent at $37.60 (-2.9%). What is interesting is the spread ($1.86 now) between the two contracts narrowing again as the price depreciates. Gold saw a brief rally also today after the Fed’s announcement and closed at +$14 at $1076 per ounce.

Currencies markets have seen the USD gain attention, yet again, with the DXY (U.S. Dollar Index) closing +0.20% at 98.40. Gains were made against core with the euro and GBP both flirting once again with the 1.09 and 1.50 levels. In the UK, the Governor of the BoE, Mr.Carney, has been stating that there will be no rate hikes unless the data dictates it is time. The outlook does not look pretty for cable.