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Market Talk – September 12, 2016

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Asia started off where we left the US on Friday with the selling pressure still dominant. The Nikkei cash opened down over 1% lower and did not look likely to break that decline at any time during the trading session. Eventually closing 1.7% lower the JPY saw the safety rush but interestingly not as dramatic as many had expected. The Yen gained 0.7% as Europe began to open but Hang Seng had already taken the majority of the pressure declining 3.4% reflecting much of the large cap European players. Shanghai lost 1.9% but remained above the psychological 3k level. In late US trading all Asian indices have bounced and reflecting gains of around 1% for the Nikkei and China300 and 1.4% for the HSI.

Europe was weak from the opening bell with all cash indices 1% down. The lows were hit early in the session and it was encouraging to see all core indices trade stronger throughout the day helped mainly by the recovery in US markets. However, the closes were still around the 1.35% lower but after hours futures trading have DAX, CAC and other core indices regaining all of the days losses and could be around unchanged on the day. Could be interesting given some German data releases tomorrow in the form of inflation and ZEW (confidence survey), plenty to upset an already nervous market.

In a speech today it was Lael Brainard (FED voting member) who said that it could be wise for the FED to keep monetary policy loose. This was a key reason, many traders highlighted, for the strength seen in Mondays trading. We have the FED next week, Retail Sales, CPI and much more both any decision has to be made so all is still to play for. The VIX lost ground after Fridays near 50% rally and this evening was last seen trading around the 15.5 level.

US bonds were initially stronger as early US stocks futures were pointing to a weaker market but that turned early and with them treasury prices. In late trading 2’s are 1bp lower at 0.77% whilst 10’s are almost unchanged at 1.67% (2/10 closes +90bp). The belly was the best performing part of the curve as 5’s closed 2bp lower (yield) at 1.20%. I will be interesting tomorrow as we see the long end auctioned, the 30yr closed this evening at 2.39% (unchanged from Friday close). German 10’s traded back positive again closing this evening at 0.35% (+3bp). This closes the US/Bund 10yr spread at +163.5bp. Italy 10’s closed 1.27% (+3bp), Greece 8.19% (+6bp), Turkey 9.5%, Portugal 3.17% (+3bp) UK Gilt 10’s at 0.86%.