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Market Talk — January 11, 2016

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With Japan closed (Coming of Age Day) we were forced, yet again, to watch the excitement unfold on the Chinese exchange. Most of the talk was on the foreign exchange market where the off-shore currency quote (CNH) saw a huge jump (940bp) on the Hong Kong overnight quote to a 6.5850 (last seen +1.5% against the USD) with obvious liquidity concerns. Having had the PBoC set rates at 6.5701, rumors of official intervention saw the off-shore market set its largest one-day move since it launched in 2010. Shanghai eventually closed 5.3% lower with HSI finishing 2.8% down. Late in the U.S. session, we are seeing both the China 300 and HK HS50 bounce 1% and 0.35% respectively.

Europe opened marginally weaker then spent 90% of the trading day in positive territory only to dip on the close. Not too much to get excited about but DAX closed -0.25%, FTSE -0.7%, and CAC down 0.5%. Oil and currency are being blamed — as if someone needs a daily excuse! If people are really looking at the oil price of a stock market leader, then given today’s price action for the black gold, U.S. stocks performed amazingly well! Eventually closing mixed (DOW +0.3%; NASDAQ -0.1% and S&P +0.1%) after seeing triple digit losses at one stage. Markets really are torn in all directions, especially when you look at FX swings (+/- 2% in a day). Oil prices declined (6% today) with economic data (292k Fridays NFP v’s expectation of 200k) and you can expect further volatility with fewer players than usual.

The U.S. bond was probably one of the quietest markets around Monday with the 10yr registering only a 4bp (2.14-18%) yield range. The curve really is torn between a safe-haven (stock counter play) bid. The front-end closed almost unchanged (2’s 0.94% and 5’s 1.6%), while the long-end is still smarting from the NFP surprise (despite the very rally weekend hide away) closing at 2.17% and 30’s at 2.97%. The German bunds suffered a little today losing 2bp to close 0.55% (US/Bund closes 162bp) while the Italian 10yr closed at 1.60%.

Worth a quick mention are the emerging market currencies and their continued weakness against the U.S. dollar. The Russian rouble breached the 78 handle (big figure) today seeing a high of 78.371 a loss of around 1.75% on the day. The Turkish lira also lost around 0.6% and was last seen around 3.034. The DXY closed 98.92 (+0.35%).