Market Talk – January 5th, 2016


We have ended a busy week for equities with a mixed session for Asia and it was the Nikkei that was to spoil the party yet again! Closing the day down 1.3% this puts the Nikkei index return on the week at -5.9%. Had we not seen a large bounce at the close the losses would have been substantially more! This evening things are not looking any better either, as having seen the US employment numbers, the Nikkei Futures have lost an additional -1.9% in late US trading. Worth mentioning also is that Dealers continue to point at the currency as a cause but who is following who? Last seen late this evening is $/Yen trading at 116.90 (hi today 116.20). Shanghai and HSI were both, in comparison, very quiet. Shanghai finished down 0.6% whilst the HSI closed +0.6% higher.
In Europe most people were waiting for the US employment number which were a disappointment. Expected was +190k what we received was +151k and even then there was a revision to the December number from +292k to +262k. We did, however, see an improvement in the rate move from 5% to 4.9%, while the participation rate moved up to 62.7%.
All core European Indices were treading water until the numbers and then it all turned ugly. The DAX, CAC, and FTSE all traded lower in the afternoon session closing with losses of around 1% across the board.
The US market reacting negatively to the data did not look back and traded lower and lower as time drifted towards the weekend. With the NASDAQ leading the way (-3.4%), shares such as Apple, Amazon and Facebook all suffering in the sell-off. LinkedIn was the talk of the street having posted weak forward guidance, shares ended around 43% lower today. Dealers are concerned whether the FED was too optimistic in raising rates December last year and discussing the possibilities of a reverse gear! The volatility is still a talking point also this evening as we watch the VIX trading back-up at 24%. DOW and S+P closed -1.85% and -1.42% respectively.

US Bonds unfashionably had a quiet day (for an NFP’s Friday)! US 10’s closed unchanged at 1.84%. We did see a little weakness at the front end with 2’s and 5’s both losing 2bp each. In Germany 10’s closed 0.29% closing the spread 10’s/10’s at +155bp. Italy 10yr closed 1.55% (+2bp); Greece 10yr 9.33% (+8bp); Turkey 10yr closed 10.36% (+1bp) and UK 10yr Gilt closed 1.56% (unchanged). Talk on the street is that Russia is approaching banks for possible Bond issuance, Ukraine bonds are almost bid-less (3yr bonds were last heard to trade 10.25%). Dealers are starting to question some of the peripheral spreads – more on this next week.

Gold had a late rally to close the day up $15 at $1173 (just over 3% for the week).

The US Dollar Index (DXY) recovered some of yesterdays losses closing 0.5% higher today as it made ground against GBP, and Euro. Some of the EM currencies suffered but that is to be expected given the slide in oil again (-2.3%) to close $31.