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Market Talk — May 19, 2016

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Interesting that both the Nikkei and Shanghai closed almost unchanged following a similar trading pattern today but the Hang Seng really could not even attempt break-even, closing down 0.6% on the day. The JPY closed above the bullish reversal but we have a large gap to wait for the weekly. In late US trading the HSI remains unchanged from the cash close whilst both the Nikkei and China 300 have lost an additional 0.3%.

Europe reacted to last evenings FED rate concerns and from the open all core markets were heavy. Having recovered from Q1 lows dealers are concerned the lows may have to be revisited. Nervous trading throughout the day ended with the DAX and FTSE around 1.7% lower whilst IBEX and CAC both closed close to 1% lower. The UK Retail Sales were not enough to turn sentiment, despite a healthy number (1.3% m/m and 4.3% y/y against an estimated 0.5% and 2.5%); we did, however, see GBP continue its march; closing this evening around the 1.46 level.

With BREXIT now becoming a reason quoted by the FED for considering rate movement, it is no surprise FED speakers are highlighting June as a “Live” meeting! All core Indices had a negative session when, at one point, the DOW was off over 200 points. By the close, however, we did see a strong recovery with half those losses, closing around 0.5% lower across the board. Given today’s sell-off we saw renewed interest in the VIX and this evening that was last seen trading  16.7.

We saw a little buying return to the US Treasury Market with yields down around 2bp across the curve. 2’s closed this evening at 0.88% with 10’s at 1.85%. 2/10 curve closing +97bp. Germany lost a little ground on its spread today as yields rose by 2bp in 10’s today. The spread US/Bund closed this evening at +168bp. Italy 10yr closed u/c at 1.49%, Greece 7.32% (+5bp), Turkey u/c at 10.02%, Portugal 3.06% and UK Gilt 10yr at 1.44%.

Only marginal data between Europe and US tomorrow so not too much to get excited about. We still have news around the BREXIT vote for the next four weeks (our report is due very soon). We are also hearing of banks being sued by an investor surrounding the Agency-Bond market. There are allegations of colluding between traders to manage bid-offer spreads. We will blog on this soon.