Once again, oil influenced markets around the world. Having dropped 6% yesterday, we were confronted with another 5.5% drop in prices today, closing below the psychological $30 level. Shanghai was the exception in Asia (closing up 2.3%) but this was a relief from previous weak sessions, rather than a specific excuse! ASX lost 1% after the RBA’s decision to leave rates unchanged. Some argued this was the reason oil started the sell-off, but again this is dealers looking to put a reason against every move. Nikkei lost 114 points (0.6%) and HSI down 0.7%.
In late U.S. trading, all Asian Indices are around 1.5% lower than their closes. Europe opened weaker following Asia’s lead but it certainly was not helped as BP announced its worst annual loss ($6.5Bn) in 20 years. Shares were last seen down 8.7% intraday. Meanwhile, the financial world was not looking at the rise as UBS reported 2015 net profits up 79%, but spoilt that claiming that current conditions (volatility, low rates, and a strong Swiss) are proving difficult and saw their shares punished when they fell 7% in today’s trading. All core Indices closed down DAX -1.8%; FTSE -2.3% and CAC -2.5%.
It was very much the same story in the U.S. with oil, energy, and financials setting the trend. The Dow closed down 290 points following oil, and concerns of global growth continue to disturb market sentiment. With the street so nervous, all data released is to be watched very closely. Tomorrow in the States we will see the release of the ADP where we saw last month beat estimates (+192k) and was released well above consensus at 257k. The market could certainly do with some positive sentiment tomorrow ahead of Fridays NFP.
As usual, the beneficiary in all of this was the bond market and today U.S. 10s had an impressive run. Closing this evening at 1.86% (-9bp) and the German bund closed 0.0.305% (-4.5bp). Closing the U.S./bund spread at 155.5bp. We did see a flattening of the U.S. curve today with 2s lagging (closing 0.735% -6bp) whilst 30yr Bonds closed 2.66% (-10bp). Meanwhile, the peripherals closed: Italy 10yr 1.48% (+1bp), Greece 9.16% (+10bp), Turkey 10.62% (+2bp) and UK Gilt 1.54% (-8bp).
Currency markets saw the usual run into the US Dollar and especially away from the EM currencies. The Rouble, Brazilian Peso and Turkish Lira all suffered losses as safe-haven were sort. In Russia the Rouble lost 2.25 whilst the 5yr note rose 14bp to close 10.55%. The Real lost 0.8% to 3.9902 per USD after poor Industrial Production release also.
There is lots of rumors around late this evening that China could suffer a ratings cut if the current mood and volatility continues. These are rumors but it just highlights that dealers are frightened of their own shadow when we see unexplained volatility such as we have experienced recently.