A mixed session in Asia (Nikkei +2.9% and Shanghai -2.4%) left just the HSI as the deciding factor and that closed stronger at +1.1%. Europe and the U.S. futures were all pricing in a stronger open and until mid-day (Europe) that was pretty much business as usual. Yes, we did see a turn in the price of oil during mid-afternoon trading. Another technical failed with a 10yr bund auction and more corporate job redundancies but there are also concerns over some high-yield bond funds and this remains a cause for concern for the stock market. The more money we see being pulled from (credit) bond funds, the more the underlying markets will need to reflect the decreased liquidity. Once we see triple-digit declines, particularly when you see large a trading range (almost 500 points today), then the nerves will appear and the rush for safety will begin.
The U.S. Treasury market was that harbor today with 10yr declining almost 7bp (to close 2.07%). The front end saw the majority of the inflow and we last saw 5’s trading at 1.52%. In Europe, the German auction result failed to cover bids (actual 0.85:1) with the bid way under the then current market price. The US/Bund 10yr spread closed +157bp. Italy was a little more fortunate selling a total of 6.7bn across 3,7 and 15year BTP’s (bonds).
Gold bounced in late U.S. trading, rallying almost $11 and was last seen at $1093. The sell-off in oil today focused mainly on Brent today (hitting a 12yr low -1.9%) pushing the spread between WTI and Brent trading -$0.30 (WTI $30.65 and Brent $30.30). Yesterdays breach into the $29 handle has certainly gone a long way to spook markets, especially coupled with some houses calling for a price drop into the teens.
Not too much action in the currency markets today but all eyes will be on the Bank of England tomorrow for the rate decision. Nothing is expected, and looking at the curve, the market has nothing priced-in until early 2017. Sterling is obviously taking the heat for this and has fallen almost 5% in the past few months. DXY had a quiet day closing almost unchanged at 99 (-0.05%).