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Market Talk — January 25, 2016

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Asia’s response to the late U.S. rally in stocks was to play catch-up this morning with all core indices closing up around 1% (roughly where they opened). The ASX followed the surge in oil prices with a gain of almost 2%. Rumors around the market that the BOJ has furthered easing plans helped sentiment, so at least the thinking is positive. As the day progresses, oil is once again flirting with the psychological $30 mark and so we are watching Asian futures down around 1.5% across the board! All core European indices opened firmer but drifted into the close. With all cores recording losses, the mood to take into the U.S. afternoon was anything but positive, and as oil drifted — equities followed. Banks in Europe and the U.S. were some of the biggest losers today with BNP -3%, Lloyds -5.6%, Deutsche Bank -5.5% and Goldman in the States -3.6%.

Although we did see a $12 ($1108 +1.1%) rally in gold, the flight to safety was not that evident in the U.S. Treasury market where 10yr closed 2.00%. Late in the day, we did see buyers taking the yield from 2.04% down to close 2%, but volumes were thin and the front end was rather slow to follow. 2s closed almost unchanged on the day (0.86%) with 5’s 2bp lower (1.44%) and 30’s 2.79% (-4bp).

There is an on-going concern that the “on the runs” (the most current issues) are the only liquid instrument around and so the spreads between “on” and “off” are increasing. This will become a bigger problem further down the road so we will write more on this in due course.

German bunds played in a rather tight range closing 1bp lower at 0.47%. 10yr US/Germany closes +153bp. 10yr Italy (BTP) closed this evening 1.56%. As we approach some interesting times we shall also include Greece (10yr closed 9.04%), Turkey (10.75%), and UK (10yr closed 1.68%).