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Market Talk- March 9th, 2017

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Markets and sentiment did not do too well in Asia today after the decline in the oil price yesterday. Energy stocks were hit as were commodity relations as we saw mixed data out from China and weaker JPY. China released better than expected Producer Price Index but was countered by slower than expected Consumer Prices. As a result both Shanghai and Hang Seng lost around 1% each with energy and commodity sentiment dragging markets lower. The Australian ASX was also hit (-0.4%) being dragged by BHP as it lost 5% watching Iron Ore prices decline and all this dragged the A$ back by -0.8%. In Japan, the Nikkei benefitted on the back of a weaker currency when it finally made the break back above the 114 level. As we close the US session, the yen is playing with the 115 handle and the Nikkei futures trade around +0.5%.

Europe opened weaker in sympathy with Asia but all eyes and ears were always going to be focused on Frankfurt and the ECB’s lunchtime conference. Many interpreted today’s meeting as a non-event, but then again it usually is until the Q+A session. Here was when we heard a little more detail surrounding the ECB’s optimism on global growth. It appears that finally the market has accepted that they actually said they are cutting back their monthly figure by €20bn and now they feel inflation is returning! Immediately, bunds were hit and the spread between US/Germany shrank by 4bp to +216bp. It did not help that treasuries were weak anyway and the end of the weeks supply (30yrs today) came at 3.16% while the 10yrs played with the 2.60% level. All this ahead of the NFP’s tomorrow – could be the end of an interesting week! We doubt this has come in time to stop the March squeeze on the futures roll but maybe they can work their magic to free up some of the spreads being charged for on the runs and the CTD. DAX and FTSE closed down as BREXIT continues to drag, while we saw gains for CAC (+0.4%), DAX (+0.1%)and IBEX (+1.5%).

US stocks opened better but could not hold their gains as treasury yields rose. Having lost a 100 point rally at the open, we drifted back to small losses in the final hour. Volumes were light which is not unusual ahead of Non-Farms Friday. Many have adjusted their calls with estimates now around +210k which is not surprising after Wednesday’s ADP report. Core US almost unchanged across the board.

Given that the ECB has been buying bonds like they are going out of fashion and that they own around €1.5tln, the speculation is that they are running out of bonds to buy. This is certainly an issue for many peripheral markets where liquidity has almost dried-up. The concerns are that the gap between the north and south remains and it is the south that continues to suffer – guess they have to rely on Germany being strong enough to lift everyone.
US 2’s closed 1.37% (+2bp), 10’s 2.60% (+4bp), Bunds 0.435% (+7.5bp). France 1.07% (+6bp), Italy 2.30% (+6bp), Greece 7.01% (+2bp), Turkey 11.02% (u/c), Portugal 3.98% (+4bp) and Gilts 1.22% (u/c)