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Market Talk – January 21, 2016

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All core Asian Indices suffered as concerns surrounding the oil price continued to drive market sentiment. Late rumours that Saudi’s Aramco were in talks with Hong Kong’s Sinopec of a possible refinery investment within China. This news certainly helped their share (Sinopec +1.8%) but was too late to aid the broader markets or the price of oil. With the Nikkei, HSI and Shanghai all closed weak (-2.4%, -1.8% and -3.2% respectively) it was left to the ASX (Australian Stock Exchange) to be the sole ray of sunshine closing up 0.5%.

European trading was a game of two halves today. As per usual, it was down to screen watching ahead of the ECB announcement (unchanged rate as expected) but it was the statement and Q+A that woke everyone up. The announcement renewed worries surrounding growth. Mario Draghi expressed concerns about emerging market participation, despite his confidence that measures already taken are indeed working. With claims that the ECB will review its monetary policy at the next meeting, the euro sold off and stocks rallied, but the biggest confidence booster was that oil saw a significant rally encouraging short-covering to force a close up over 6% back to the $30 mark. U.S. stocks also had an encouraging rally to close the day higher off of the day’s highs, but in fairness, it did not really matter as many dealers we spoke with just feel that sentiment changed today and are just looking forward to the weekend. Dow closed +116pts (+0.75%), S&P +0.5%, and NASDAQ up (but that is all that mattered).

The U.S. Treasury market lost all of its recent safe-haven bid to close 10’s at 2.03% whilst bunds closed 0.45%. This moves the spread back to +153bp with Mr. Draghi taking all unwanted paper. The Italian 10yr closed today at 1.56%.