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Market Talk – February 8, 2016

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With most of the Asian markets closed, many were expecting a steady, easy opening Monday to start the week. The Nikkei cash managed a close above the much talked 17k level (+1.1%) and even saw the ASX clamber into an unchanged close. However, just 90 minutes into the European session dealers remarked that Bank stocks started the sell-off and no-one made efforts to halt the slide. Deutsche Bank was one of the worst (core) performers eventually closing 9.5% down on the day. There were more rumours around Deutsche Bank possibly missing coupon payments later in the year for CoCos (Contingent Convertible’s AT1 Debt) also triggering fears that the debt payment for 2017 (€4.3bn Estimated) are being questioned. Italian banks were not far away especially  Banca Monte dei Paschi di Seina which fell 12% in the days weakness. All core Indices closed around 3% lower but it was the Athens Exchange that lagged them all closing down 7.9% on the day. Since Mr Draghi’s pledge to save the Euro (back in 2012) the Stoxx (Europe 600 Bank Index) has rallied from then 120 up to peak at 223 in July 2015. However, since then the index has lost almost 40% and now stands at 140 – only just above the 120 trigger point!
In US the DOW et all opened down around 1.5%, as futures followed the very weak European markets. After falling over 400 points within the last hour of trading a very healthy bounce has reduced that loss to just 175 points (-1%). The broader S+P lost -1.4% and the NASDAQ -1.8%. Banks stocks here were also under-water an example being Goldman Sachs which lost 4.6% in todays trading. The VIX closed 12% higher, also on concerns surrounding the core markets, to print above 26.
There were two star performing market today; one was Gold trading up over $30 and briefly broke the $1200 level at one stage (Silver also rallied closing up 3.9% at 15.35) and the other was the Bond Market. Bonds on both sides of the pond rallied with the belly (7-10yrs) the best performing part of the curve in late trading. US 10’s traded down to 1.74 but closed this evening at 1.76%. 2’s were down 4bp at 0.675% whilst 5’s closed at 1.17%. In Europe, the German Bunds followed suit with the US but saw underperformance within the peripherals. 10yr Bund closed 0.22% which puts the 10/10yr (US/Bund spread) at +152bp. Italy 10yr closed 1.68% (+13bp); Greece 10yr closed 9.95 (+62bp); Turkey 10yr closed 10.52% (+16bp) and finally 10yr Gilt closed 1.41% (-15bp).