Market Talk — February 17, 2016

This time is was Shanghai that bucked the trend after ending the day up +1.1% whilst the Nikkei and Hang Seng closed 1% lower. All core indices moved in a 3%+ range, which is only to be expected these days. Late in the US trading day, we are seeing Asian futures following the strong pattern of global markets with the Nikkei and Chinese futures both adding an additional 2% on the earlier cash closes. European stocks moved from strength to strength as the day wore on. News that total oil production will be capped from both OPEC and non-OPEC members installed confidence if nothing else. The fact that there was an agreement was taken as a positive sign and the gain in oil prices was an added benefit. All core markets closed around 3% higher with banks, miners and refiners all showing impressive gains. We shall see tomorrow if this momentum can be sustained after they read the FED minutes and the European leaders summit tomorrow from Belgium. Top of the agenda will be the topic of the BREXIT and closely followed by the migration issue. All efforts are being made to encourage Britain to adopt the closer ties but PM, David Cameron, did offer the voters the chance of a referendum, the date which is rumored to be announced depending upon tomorrow’s meeting.

In the US, markets have followed the European trend and watched the 6% gain in today’s oil price. A more dovish reading of the FED minutes late this evening has helped support today’s gains. Although they expressed concerns about a global risk (slowdown) they were not positioned with enough information (just yet) to making a policy decision. We are back to watching economic data which is what FED Chair Janet Yellen will repeat next.

US Treasuries have sold off on the day but in all fairness – they have been weak all day. Last trade seen was US 10’s at 1.81% again today off 3bp from last night’s 1.78% close. Interesting that both wings (5’s and 30’s) also gained 3bp. 2’s gained just 2bp to close 0.74% so a small 1bp steepening 2/10’s curve. Germany saw another poor auction today (again uncovered) but closed 0.27%. Closes the spread tonight at +154bp. Peripherals closed Italy 10yr at 1.60 (-2bp), Greece 10yr closed 10.58 (-10bp), Turkey 10’s closed 10.61% (+12bp) and finally UK 10yr Gilts closed 1.48% (+4bp).

Tomorrow we have the Asian and European reaction to the FED minutes; we have seen both geographies futures market trading small better on the release. Also, S+P have cut ratings on Saudi Arabia, Oman, Bahrain and Kazakhstan as a result of recent oil price declines. You may remember SA was cut only just last October (to A+) so today’s two notch downgrade (to A-) is a bit of a shocker. Mexico has surprised markets also today when they raised rates (by 50bp to 3.75%) in an attempt to stem the weak peso.