Market Talk – May 24, 2016

It was debated at length today whether the Nikkei leads JPY or the yen leads the stock market! Either way we saw cash equities lose 0.9% today whilst the Yen rallied 0.6% only to lose that after the cash close. In late US trading we are looking at 110 handle but the Nikkei futures have rallied 1.6% and are currently quoted 16,775. After a negative session in Shanghai and only a very late rally clearing the Hang Seng we have had to wait the whole of the western session to see a 1% rally. The mood in US has helped all indices, not least Asia’s!

Europe took time to get sentiment moving especially after the poor German ZEW index when a 6.4 release pail into insignificance having expected a 12! However, from that point forward all core indices behaved rather well and by the close registered gains across core Europe of between 2.2 and 2.5%. FTSE was the only outlier as a 1.3% gain was complemented by an additional 1% gain in the currency. Late European strength was bolstered by the impress US Home Sales number of 16.6, especially against a forecasted 2% gain! US stocks just took that as a massive green light and Europe followed suit.

US market was in a better mood from the open and so the Housing number just provided the imputes it needed. With all core indices closing between 1.5 and 2% higher it was not really a surprise the VIX traded below the 15 handle. Once we claimed this mark the market settled into a quiet Tuesday afternoon session. This confidence also lifted the US Dollar with the DXY Index closing around 0.5% higher at 95.65. Given the strength in equities, it was deemed there is no need to support the price of gold and consequently that saw a 1.75% decline in its price to below the psychological $1230 level.

All this excitement and we forget the Bond markets! The first day in a while that we see selling at the long end but that did result in a 1bp steepening of the 2/10 curve. We do have a market test given that Germany will attempt to sell 30yr Bund tomorrow – will be an interesting test of market appetite! 2’s after the auction closed at 0.905% while 10’s made 1.86%; closing the 2/10 curve at +95.5bp but we did see it trade +92.5bp intraday. German 10yr Bund closed 0.175% closing the US/Bund spread at +168.5bp. Italy closed 1.42%, Greece 7.02% (-1bp), Turkey 9.79% (-35bp), Portugal 3% (-5bp) and last UK Gilt 10yr at 1.47% (+2bp).