Well, today was fun! Asia suffered from the start with heavy selling across the board. Both the Nikkei and HSI closed down almost 4% with Shanghai losing just 1%. Most blamed the IMF down-sizing its growth forecast (from 3.6 to 3.4%) but obviously, the oil price is never far from everyone lips. With WTI closing this evening at $26.76 (-6.7%) it really is not a surprise until people start to accept it — and that is exactly what happened today. European futures (DAX) were trading 2% lower before the cash market even opened. Concerns in Italy that Banca Monte dei Paschi de Siena (-22.2% today) has seen large deposit demands (Banca Monte dei Paschi de Siena) rocked not just the Italian Stock Index (-4.8%) but also had ramifications for the Senior Financial Bond Index, the Italian BTPS’s and escalated nerves around other institutions. Obvious talks of takeovers late in the day but that is to be expected.
Elsewhere in Europe, the markets remain wary of ever increasing volatility — especially within the miners. Glencore Plc was another stock heavily discussed today (-9.9% today) as the oil price returned to their lows. FTSE and CAC closed down -3.5%, DAX lost 2.8% whilst Russia lost 5.15%.
In the U.S., we opened way down with the Dow hitting 15.500 and the S&P reaching 1800. From here, we saw the buyers emerge and most of the losses were recovered by the close of play. The December CPI print of 0.1 did not help matters but by the close most had forgotten all about it.
The flight to quality was again gold (+$10 closing $1100), but also the U.S. Treasury market with the bund in Germany not far behind. The U.S. curve flattened 2/10 by 2bp to close +116bp, with the 10yr closing just under the psychological 2% level at 1.985%. Germany 10’s closed 0.49% US/German 10yr spread last seen +150bp. Also, as we recommend you pay attention to the peripherals: Italy 10yr closed this evening 1.65% (+11bp).
We do have supply from the peripherals tomorrow (Spain) but given how they performed today this could be an interesting auction.