Market Talk – February 12th, 2016

The Nikkei re-opened after yesterday’s public holiday but again was sold from the open. The key banks suffered yet more liquidations eventually closing Mitsubishi UFJ -2.3%, SMFG -4.1%, Mizuho -3.7% and the main Nobel House (Nomura) was down 9.2%. Exporters also suffered Toyota, Nissan and Sharp all down between 6 and 10%. The Nikkei closed down 4.8% just below the 15k level to end an 11% decline for the week. It is worth noting that late Friday evening the Nikkei futures are currently bounced 3.5% since the Tokyo close.
European shares produced a much needed bounce ahead of the weekend and saw all core markets closing between 2 and 3% higher on the day. Energy prices were the main excuse used by dealers but prices were very stretched on the week and so profit-taking was probably expected. Oil bounced almost 11% at one stage in the day. Given the bounce in commodities shares such as BP, Tullow Oil and Total all saw healthy buying producing returns of between 8 and 11%. Anglo American was one of the better showings (+17%) but also Glencore (+12%) and some banks benefited. Deutsche Bank and Soc Gen closed +11.8% and +18% respectively.
In the US all cash markets opened firmed following Europe but then went from strength to strength. The DOW eventually closed up over 300 points (+2%) closely followed by the broader S+P (+1.9%) and the NASDAQ (+1.7%). Everyone was talking about the UAE’s proposed handling of an OPEC production discussion and it was very healthy to see them stepping-up. Monday will be interesting as we have finished an extremely difficult week on a much better note. However, as the Chinese market re-opens on Monday the US market will be closed for Presidents Day. In late trading the VIX dropped back to around 26.

Gold held onto most of Thursdays gains, traded in a very narrow $1235-40 range closing mid-price $1238. The US Treasury market however, lost a lot of their mood and closed over 9bp higher (lower price). US 10’s eventually closed 1.74% against a close Thursday of 1.65%. In Europe the German Bund faired a little better (still working that the biggest buyers remains the ECB) closing tonight at 0.265%. The US/Bund 10yr spread closes +147.5bp. Italy 10yr closed 1.64% (-6bp), Greece 10yr 11.03% (-9bp). Turkey 10yr 10.42 (-6bp) and finally 10yr Gilts closed 1.41% (+11bp).

Talk between dealers this week has been around the JPY, stocks (obviously), oil and then a huge discussion as to whether QE actually works! Especially having heard Janet Yellen’s response earlier in the week and the fact that Japan has been “active” since the mid 90’s and now the 10yr JGB trades negative! We have the G20 end of February and given we have seen huge volatility become the norm – Central Banks must be questioning the whole process themselves.