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Market Talk – February 1, 2016

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Despite a better than previous Chinese PMI release (48.4 against a previous 48.2) it was not what was expected (48.6) and so the Shanghai Index just could not make headway and eventually closed down 1.8%. Japan, on the other-hand, was still trading better (+1.8%) on the negative interest rate route as money looks for bargains in the private sector. As you would expect, banking stocks did not follow the enthusiasm with stocks such as Mitsubishi UFJ, Mizuho Financial and SMFG all closing around 6-7% lower on the day. Hang Seng closed marginally lower at -0.4% in thin trading. Europe saw a mixture of data with not one individual piece having the ability to master the command. Spain’s PMI 55.4 V’s estimate of 52.4 was shadowed by Italy’s poor 53.2 against an est. 55. FTSE opened positive but by mid-morning it too had succumbed to follow the pack lower and in quiet (well – relative to January) closed the day down -0.4%. DAX and CAC both closed lower but off their days lows.

The US data was on the whole negative also and within the first 30minutes of trading we were down 1% (ISM sub 50 again) but had dealers claiming we were following oil again! WTI and Brent were down around 6% eventually closing just sub $32. However, despite this early sell-off the Index spent the remainder of the day recovering to close up into some key stock earnings figures. Late futures trading this evening is seeing some strong gains as broad customer interests appear. Googles parent (Alphabet) is trading up 9% after earning ($8.67 per share) beat an expected $8.1.

Bond markets around the world sold off even as shares wobbled in early trading. US 10’s were last seen at 1.95% (+2bp). German 10’s closed the day 0.35% (+2bp). European peripherals lost a little ground with the following closes.. Italy 10yr 1.47% (+6bp); Greece 10yr closed 9.06 (-6bp); Turkey 10.60% (+6bp) and finally 10yr Gilts closed 1.62% (+6bp). Japan JGB’s closed 0.045% (-5.5bp). The market heard earlier in the day that the ECB had purchased 62.4Bn Euros of Bonds in January through Quantitate Easing when renewing its programme after the winter break.

Elsewhere, gold had a good day following-on from a firm close on Friday ($1116.40), today gaining over $13 (+1.2%). Also, although we saw some good US Dollar strength against (for example the Russian Rouble) the DXY only closed marginally lower at 99.05 (-0.6%) – mainly on the back of a strong GBP performance (+1.3%).