Market Talk — February 18, 2016

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Shanghai was following the heard (+1.5%) until the last few hours of trading when the index fell to close small down (-0.2%). Both the Nikkei and Hang Seng built on yesterday’s gains, despite (Japanese) economic data failing to live up to expectations (exports fell 12.9% against a market consensus of -11.3%). Worth noting also is that exports to China (one of its largest trading partners) declined 17%. The Nikkei off of its highs closed +2.35% but was up over 4% intraday.

Aside from UK’s FTSE, all core European markets closed higher today with the DAX the best performer closing up 1%. UAE exchanges, Russia’s RTS and Istanbul 30 & 100 all closed 1%+ given the on-going energy rally. The big debate around BREXIT continues this evening although we were expecting news later today. As the U.S. market comes to a close we still have no word from Mr Cameron and so we await overnight news.

In the US, the DOW closes at the days low but it really has been a narrow range – especially considering recent moves. The DOW, S&P and NASDAQ have reversed recent gains and are closing down between 0.5 and 1%. We have heard a lot of voices claiming the US will be the next to consider rate moves as the global economy stalls but when looking at US 10yr yields (1.75%) we are a long way off zero rates. OECD has also cut its forecast for world growth by 0.3% to 3.3% for 2016 and 2017 – it remains to be seen if the FED changes course.

“The markets remain jittery” – that was given today by many for the revival of the gold price. Gold saw a hefty rally today (from $1200 up to the $1240 close) despite the talk of central bank liquidations and an extremely quiet equity market, as a safe-haven and protection play.

The US Bond market was another to reactive this evening as equities and oil reversed their gains. In the final hour of the days trading buyers have taken the US 10yr from 1.795% down to the days lows yield (high price) of 1.74%. This move has reversed yesterdays curve steepening with a 4bp curve flattening (2/10’s). 30yrs also rallied (price) in line to close 2.62% (7.5bp lower). European bonds were also better bid this evening with treasuries. 10yr Bund were last seen this evening at 0.215% closing the US/Bund 10yr spread at 152.5bp. European peripherals (obviously closed earlier) so the spreads will change upon tomorrows open. Given the uncertainty of the close peripherals will be wider.. Italy 10yr closed 1.55% (-5bp), Greece 10’s closed 10.18 (-40bp), Turkey 10yr closed 10.58% (-3bp) and Gilt 10yr closed 1.44% (-3bp).