Market Talk – February 11, 2016

Market-Talk (1)__1454353396_72.94.249.194

It must feel like there is no end in sight for the Japanese stock decline as futures continued their decline despite the cash being closed for a public holiday. We did see the return of the Hang Seng with a -3.8% decline after celebrating the Lunar New Year. Again, oil was the top “excuse” having seen the price fall 1.8% in Asian trading. By the time Europe opened stocks were expected lower but it was FTSE that bucked this trend opening 0.5% only to following the core lower after the open.

Again, the hot topic was bank shares with Soc Gen, Deutsche Bank, Banco Popolare and then UBI Banca all trading well into the red. The Italian banking sector in general was down between 12-15%. With Societe Generale reporting Q4 below expectations it too suffered the same fate (eventually closing down 12.6%). Oil, swapping ZIRP for NIRP, more talk of huge derivative exposure (for some core banks) are all adding to the uncertainty and lack of clear central bank direction. Final closing tonight was FTSE -2.4%, DAX down -2.9%, CAC -4% and IBEX -4.9%. The SNB cut its key interest rate from -0.35% to -0.5%.

The DOW futures were trading 300 points lower before the cash market even opened. So, when we hit over 410 points down it really was not that much of a surprise, especially after the Boeing news (reports of a SEC probe – hit shares -7%) and the continued nervous bank sellers. We did see a brief respite late in the day on rumours OPEC were willing to cooperate on a production cut but that we will have to wait and see. DOW closed -254 points but we did see a rally in the Tech sector after Amazon and Cisco saw strong demand taking their stocks up 2.7% and 9.6% respectively.

Gold was a very strong performer today rallying from $1195 up to a high of $1261 on short-covering and a desperate need for an alternative asset class (more about this posted on the blog earlier today). Gold closed at $1247 (+4.4%), Silver at $15.80 (+3.4%) and Platinum $964 (+3.2%).

The other star asset class today was the core bond markets and especially the US Treasury Market. US 10yr yields fell from 1.71 down to an intraday low of 1.55%. We closed however at 1.65% a decline of 6bp on the day. At the highs (low yield) the curve had flattened around 3.5bp (2/10’s) but it was last seen this evening 1bp flatter at +100bp. In Europe the German Bund and OAT’s (France) were the core that rallied whilst the peripheral lost ground. Bund 10yr closed 0.20% (-0.04bp) – Closing the US/Bund spread at +145bp. Peripheral closes as follows: Italy 10yr 1.71% (+8bp), Greece 10yr 11.12% (+46bp), Turkey 10yr 10.48% (+5bp) and finally 10yr Gilt closed 1.30% (-11bp).

Peripherals never trade well in times of uncertainty but the talk around the city is, “When will the rest of Europe want its own Brexit?” Fears that if the deal Britain manages to achieve (if successful) will be closely followed by many others wishing to break the mold.