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Market Talk — January 14, 2016

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There was a time when a 2% price swing used to be something to write about! Asia returned a mixed session with the Nikkei (-2.6%) handing back most of yesterday’s gains. The Shanghai (+2%) recovered late in afternoon trading and finally the HSI (-0.56%) was way off of the opening lows. Early data in Japan saw Machine Orders released at -14.4%, which was obviously quite a shock given an expectation of -7.9%, especially when compared to the previous months +10.7%.

Europe had missed the majority of the U.S. late weakness yesterday and opened with a negative bias and did not look back. All core indices closed off of their lows in negative territory (DAX -1.8%; FTSE -0.7% and CAC -1.8%). For a change, it was not the Miners that suffered but the auto makers. After confirming its offices were searched last week regarding a fraud investigation, shares in Renault tumbled as much as 19 percent before closing 10.3 percent down.

A bounce in the Brent Oil price (+2.3%) certainly helped the U.S. market today and even before the cash market opened we had triple digit gains in futures. Stock dealers watched Brent more than they watched stocks today and eventually we saw all indices close higher: DOW +227 (+1.4%), S&P +31 (+1.67%), and NASDAQ +89 (+2%). Late this evening, we saw Nikkei futures trading +1.5% from the Tokyo close. Worth mentioning here is that the sell-off in Nat Gas continued today against the Brent rally when we saw a 6% decline to close the day at $2.13.

Unsurprisingly, the safe-havens lost ground as stocks rallied; at one point we saw gold hit $1071 (-2%) and silver hit $13.81 (-2.4%). U.S. bonds also lost ground with 10yrs gaining 2bp to close at 2.09% and 5’s losing a marginal 1bp to close 1.52%. The 10yr US/Germany spread was last seen +158bp. Italy also closed a little lower with 5’s at 0.6% and 10’s 1.59%.

The USD Index (DXY) saw a small improvement today closing 99.125 (+0.2%), so not too much against the basket. However, GBP did take a hit (at one stage down at 1.4355) just ahead of the BoE rate decision and the minutes release (which were as expected 8:1). The INR was another currency that saw fresh ground when it broke the 68 level (last seen Sept. 2013). This just shows that the nerves remain in many markets and we still have further to go before confidence returns.