Posted May 24, 2016 by Martin Armstrong
It was debated at length today whether the Nikkei leads JPY or the yen leads the stock market! Either way we saw cash equities lose 0.9% today whilst the Yen rallied 0.6% only to lose that after the cash close. In late US trading we are looking at 110 handle but the Nikkei futures have rallied 1.6% and are currently quoted 16,775. After a negative session in Shanghai and only a very late rally clearing the Hang Seng we have had to wait the whole of the western session to see a 1% rally. The mood in US has helped all indices, not least Asia’s!
Europe took time to get sentiment moving especially after the poor German ZEW index when a 6.4 release pail into insignificance having expected a 12! However, from that point forward all core indices behaved rather well and by the close registered gains across core Europe of between 2.2 and 2.5%. FTSE was the only outlier as a 1.3% gain was complemented by an additional 1% gain in the currency. Late European strength was bolstered by the impress US Home Sales number of 16.6, especially against a forecasted 2% gain! US stocks just took that as a massive green light and Europe followed suit.
US market was in a better mood from the open and so the Housing number just provided the imputes it needed. With all core indices closing between 1.5 and 2% higher it was not really a surprise the VIX traded below the 15 handle. Once we claimed this mark the market settled into a quiet Tuesday afternoon session. This confidence also lifted the US Dollar with the DXY Index closing around 0.5% higher at 95.65. Given the strength in equities, it was deemed there is no need to support the price of gold and consequently that saw a 1.75% decline in its price to below the psychological $1230 level.
All this excitement and we forget the Bond markets! The first day in a while that we see selling at the long end but that did result in a 1bp steepening of the 2/10 curve. We do have a market test given that Germany will attempt to sell 30yr Bund tomorrow – will be an interesting test of market appetite! 2’s after the auction closed at 0.905% while 10’s made 1.86%; closing the 2/10 curve at +95.5bp but we did see it trade +92.5bp intraday. German 10yr Bund closed 0.175% closing the US/Bund spread at +168.5bp. Italy closed 1.42%, Greece 7.02% (-1bp), Turkey 9.79% (-35bp), Portugal 3% (-5bp) and last UK Gilt 10yr at 1.47% (+2bp).