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Market Talk — January 18, 2016

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The opening in Asia was the main discussion point for most dealers today. Oil hitting its lowest price ($27.65) since 2003, the Nikkei trading down 2% in the first 30 minutes of trading, and the Chinese raising the off-shore yuan all helped to spook markets. However, finally the fears were short-lived, and by close the Asian markets had settled (admittedly lower) but helped Europe open on a better note. Whenever a core market holidays, dealers use it as an excuse to widen both spread and liquidity and today was no exception. Despite the firm opening, markets soon eyed oil again and bids began to pull. By the close, all cores were down between 0.25 and 0.5%. Weekend rumors that the ECB is looking into European bank NPLs (Non-performing Loans) shook the FTSE MIB (Italian Exchange) resulting in a 2.9% loss for the index. Portugal indices also suffered the same fate, closing the day down 3.9%. Athens closed down 4.15% and Warsaw -3.1%. U.S. markets were closed for Martin Luther King Day but the futures were last seen in a small negative.

As Asia opened, the Brent contract saw heavy selling hitting the lowest recorded price for 12 years of $27.65. Again, the weekend talk was about existing inventories and the Iranian proposed production increasing from 100Mln bpd (barrels per day) to a possible 400Mln. The Middle East stock indices reflected this nervousness yesterday, recording a 4.5% loss in UAE and Saudi Arabia’s 5.75% decline.

Some of this nervousness was reflected within the bond market, but the U.S. was off volumes and trading was extremely thin. Bunds closed, almost unchanged, 10yr at 0.47% and Italy 1.57%; Portugal 10yr another 4bp wider to close 2.77%. Currencies remained controlled but the negativity in the oil price impacted the Russian rouble which lost 2% against the USD today closing at 79.20.

Expect a return to normal tomorrow (when the U.S. returns) when we have the overnight release of the Chinese Q4 GDP. Forecasts are for a 6.8% print with previous at 6.9%. We also see CPI in Germany and UK both expected small positive (0.3% and 0.1% respectively).