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Market Talk — January 26, 2016

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It was all too weary early this morning with Asian markets collapsing as oil prices hit session lows of $29.25 (WTI) and the Shanghai Index closed down 6.4%. News intraday that the PBOC had conducted its biggest daily open market operation in three years (360bn yuan) still could not turn the mood. The majority of the day, we traded around 2% lower but it was the final 90 minutes that shook dealers. With the Nikkei and Hang Seng both recording losses of around 2.5% even, the Philippine peso was trading at a six-year low (48.08). It really was no surprise that European markets opened weaker. All indices opened around 1.5% down, but by lunchtime most had regained losses and were bouncing with the oil price.

Rumors that OPEC producers and non-producer (Russia) are concerned about the glut and are therefore showing “signs” of addressing the issue. We have to wait and see if this consideration is taken any further but it certainly aided not just oil (+6% move from the intraday lows) but also global equity markets. Dealers wanted to forget about the morning session and just talk about the afternoon. Top performers were miners (Glencore and Rio +7.7 and +5%, respectively) with strong showing from Anglo American (+12%), Tullow Oil (+11.2%) and BP (6.35%). IBEX, CAC and DAX all closed around 1% higher whilst FTSE managed just 0.6%, but we did see an impressive bounce in the GBP (+1%).

U.S. stocks futures spent the majority of the time in negative territory early in the day but recovered with oil around mid-session in Europe producing a healthy bounce for when cash opened. Tuesday has produced some much needed encouragement but it is worth remembering the major indices are still down around 7% for the year but a healthy bounce will go a long way aiding much needed sentiment. The Dow added 285 points, the S&P +1.4%, and NASDAQ 1% — all closing close to the days highs.

What was interesting today was the U.S. Treasury markets performance with 10’s actually unchanged on the day (closing at 2%). It was commonly thought the bond market should have sold-off today given the performance in stock markets but this failed to materialize. German Bunds closed 10yr at 0.445 (+155bp US/DBR spread); 10yr Italy closed 1.5% (-6bp); Greece 9.29% (+25bp); Turkey 10.79% (+4bp) and finally UK 1.69% (+1bp).

Finally, a great day for Gold with a $16 rally and prices last seen trading $1122. Silver, Copper and Platinum also performed well gaining 2% a piece. Short-covering, anticipation of a friendly nod by the Fed kept markets bid along with rumors of continued Russian and Chinese Central Bank replenishment of supplies helped momentum.