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Market Talk – February 9, 2016

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Overnight, we saw one of the largest declines in a long time when the Nikkei closed down 5.4%. Exporters (Toyota, Nissan, Sony) were all off around 6.5%. The 10yr JGB (Japanese Government Bonds) traded below 0% for the first time ever. The currency gained 1.8% to trade 114.20 during the European trading session. With the BOJ adopting negative rates dealers remarked it just feels like a race through the bottom.
Europe was actually reasonably calm DAX and FTSE closed down around 1% but CAC and IBEX lost 1.7 and 2.4% respectively. The banking sector was again the talk of the town with many traders watching Deutsche Bank. It eventually recovered from its lows on talk of bond buy-backs but still closed -1.5% at Eur13.71. Italian banks also spent the day trading heavy with Banca Popolare Milan closing down 8%.
The U.S. session opened weak but recovered towards the close with the FED coming to the markets aid. The talk this evening, after a long period of silence is for banks in the U.S. to consider not just ZIRP (Zero Interest Rate Policy) but quite possibly NIRP (Negative Interest Rate Policy)! This certainly helped pick stocks up off of their lows even despite oil trading through the $30 mark to close $28.35 (-5%).

Gold traded in a tight range ($1185-99) but has yet to make a decisive move. The U.S. bond market saw the curve bull flatten. 2yr note lost a little ground (3bp) to close 0.695% whilst the long end (10’s and Bonds) gained 2 and 3bp respectively. 10’s closed tonight at 1.73% whilst in Europe 10yr Bunds lost 2bp to close 0.23%; closing the 10yr spread at +150bp. Peripherals performed as below; Italy 10yr closed 1.68% (u/c); Greece 10yr closed 10.47% (+52bp); Turkey 10yr closed 10.53% (+1bp) and finally 10yr Gilt closed 1.41% (u/c).

The DXY (US Dollar Index) closed a little weaker this evening, given the strength of both the Euro and Japanese Yen, closing at 96.03 (-0.58%). Some emerging market currencies continue to underperform against the USD with the Russian Ruble back out to 79.80 (-2.8%) but that could also be the result of another round of oil weakness.