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Market Talk — January 7, 2016

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For the second time this week, China’s stock exchange saw a closing due to limit down (7% move). It happened early in the day (actually, only half an hour into the trading day) which spread an uneasy tension to the Nikkei and Heng Seng. The Nikkei lost 2.33% (as the JPY strengthened), whilst the HSI closed down 3.1%.

Europe stood no chance with all core markets opening lower. All markets finished off of their day’s low (each hit within the first couple of hours trading) but despite the bounce, all still closed lower. DAX, despite an afternoon rally, closed -2.3%. FTSE closed -2% despite trading close to the green, whilst the CAC closed -1.8%.

The U.S. also opened lower (around 1.5%) then saw a rally on the news that China is to suspend its circuit breakers (which limit the daily move to 7% – actually, upon a 5% move, the markets close for 15 minutes then re-open with an additional 2% limit). The U.S. market took this as good news when announced and saw rallies for all core U.S. markets. However, by the close, this optimism had waned and we were selling off again. By the close, the DOW had lost 2.3%, the broader S&P -2.4%, and the NASDAQ -3.0%. It is worth noting that Asian futures saw China bouncing 1.8% this evening while the Nikkei lost an additional 1.1%, trading at 17,575 (around 200pts lower).

Again, the flight to quality took place and we saw healthy bounces in Fixed-Income Government Bonds and Precious Metals. Gold has rallied $16 today and was last seen at $1108 (+1.5%) with Silver following up at $14.30 (+2.3%). US Bonds rallied and was last seen trading 10’s at 2.14% (around 10bp better than yesterday). The US curve saw better performance in the belly with 5’s outperforming the wings. In Europe we did not see the Bond rally survive as long as the US Treasury market so subsequently saw the 10yr spread tighten. Last seen at 0.55% in Germany puts the gap at +159bp. 10yr BTP (Italy) was last seen at 1.56% (5bp higher on the day as flight to quality does not include the peripherals).

USD did not do so well today with the DXY losing 1% to close at 98.26. The JPY (+0.75%), the Euro (+1.4%) and 1.5% against the SEK, DKK and PLN. Lots of talk of houses unwinding carry trades (as stocks fell) and Oil fell. Oil saw 12 year lows today for WTI and Brent when price traded close to the $32 mark – their lowest since early 2004. Prices did bounce into the close but the sentiment remains weak – dealers were remarking.