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Market Talk – January 29, 2016

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The BOJ certainly woke everyone up this morning having concluded their meeting with the expectation of negative interest rates. Within seconds the Nikkei leaped 700 points only then trade back then spent the final 90mins climbing to close the session +2.8%. Adversely, the Yen was hit reaching 121.50 in Tokyo trading a loss of a little over 2%. Both the Shanghai and Hang Seng managed to climb throughout the day with impressive returns of 3.1% and 2.5% respectively. And in late trading in the US the Nikkei has added an additional 1.6%, whilst China 300 adds a further 0.7% and HSI an additional 0.35%. Europe opened on the crest of an optimistic wave and never looked back. A strong performance across all core indices (DAX +1.6%; FTSE +2.6%; CAC +2.2% and IBEX +2.6%) resulted in a small recovery of what has been a tortuous month.
US futures were indicated +1% higher prior to the cash market opening and went from strength to strength. All Indices closed around the highs of the day surging 2.5% across the board. Despite a miss for the 4Q GDP (0.7% v’s an expected 0.8% forecast), countered by the volatile ISM release (55.6 versus an expected 45.0), then a small miss on the U Mich. Sentiment (92 v’s 92 estimate) to settle a very volatile week dealers were happy to follow the BOJ’s lead and await more clues especially having watched the European Bonds reaction today.

All Bond markets liked the decision by the BOJ today and in Europe they took it as confirmation about Mr Draghi’s future route. US 10’s pushed 5bp lower on the day to close 1.93%. We saw small flattening 2/5’s (2.5bp), whilst 5/10 were flat but left 30’s lagging by 2bp (last seen 2.75%). In Europe both core and peripherals took flight. German 10’s closed 7bp lower at 0.33% (closes the US/German 10yr spread at +160bp. Italy 10yr closed 1.41% (-10bp); Greece 10yr closed 9.12% (-6bp); Turkey 10yr 10.54% (-8bp) and finally 10yr Gilt 1.56% (-11bp). FYI – Japan 10yr closed 0.10%.

The US Dollar was the talk of most markets given the approach that Japan has decided to adopt. The DXY (US Dollar Index) closed this evening at 99.62 (+1.1%), with the obvious loser being the Japanese Yen which declined 2% to close 121.20. Both the Euro, CHF and GBP took hits earlier in the day but all closed off their worst level (all down around 1%). With the bounce in the oil price then so has the Russian Rouble, closing this evening just off the psychological 75 level.