Market Talk – March 18, 2016

Market-Talk -R

The strong Yen continues to weigh on the Nikkei even though other core Asian Indices performed. Minutes from the Jan BOJ meeting were released which showed that additional stimulus were discussed, including the possible expansion of QE. However, having opened unchanged and after a long week the Nikkei closed down -1.25% on the day and 2.5% lower on the week. China Main performed following some positive Housing data. The Shanghai closed the day +1.73% (+4.5% on the week) and has added an additional 1% in late US futures trading. HSI also better +0.8% on the day (+1.5% on the week).
In Europe, with the exception of the FTSE, all core exchanges closed around +0.5% higher. On the week most exchanges are small lower with the exception of FTSE (but it took the Chancellor to deliver the Budget in order to achieve this). A quiet Friday with many attending Cheltenham.
In the US we initially saw strong gains but then lost their way as oil turned. In the last hour of trading we have everybody talking, that we are positive for the year – lets hope we hold on this time! Having opened the week at 17,180 and after small fright on Tuesday we have spent the rest of the week going from strength to strength, but we did not reach 17,750. Next week we have a short week ahead of Easter but halfway through often freaky March. Nontheless, all eyes will be on the end of Q1 numbers.
A quiet time for many markets today with USD eking back some of yesterdays losses and was last seen trading at 95.11 (+0.3%,) with the Euro (-0.45% on the day) starts to drift into the close. The dollar is not yet ready for blast-off time with the uncertainty of the presidential elections ahead. The Republicans are still conspiring in secret back-door meetings and will unquestionably change the rules again since the current version they created to prevent Ron Paul’s name from being introduced means that nobody but Trump can be introduced. They will not tolerate that so you can count on more games ahead. This will simply expose how corrupt politics has become and will at last expose the truth that Americans do not actually vote for candidates but delegates who then can do as they like. And they call this a “democratic” process and the constitutional right to vote? Vote for what?
The Bond markets were also having a quiet day with the US 10yr trading its tightest range (around 3bp) in a while. Finally, we closed the day small better (1.87%) which was 2bp lower (yield, higher price) than Thursday’s close. 2’s were almost unchanged on the day with the 2/10 curve closing +103bp. In Europe the spread Germany/US tightened a smidgeon with Bund closing 0.215% leaving the spread at +165.5bp. Italy 10yr closed 1.27% (u/c), Greece 8.36% (-15bp), Turkey 10yr 9.82% (+2bp) and finally UK Gilt 10yr closed 1.45% (u/c).
Interesting that towards the end of the week we have had many traders calling the end of the US Dollar rally and claiming it is time to move back into High Yield and Emerging Market paper. True, the yield is very attractive and especially when core rates are at or below zero. But, they are at zero for a reason (or so they wish to believe) which makes this a risky game to play. They have no idea how bad things can really get as we head into 2017.