Market Talk — May 10, 2016

It was a solid day all around the globe which was a little surprising given most markets backed away from yesterday’s gains late in the day. China’s data was marginal given what had been expected, but the positive momentum, strong oil, and a reviving commodity sector made everything feels sunny again. The Nikkei has recovered well from the Golden Week route with today’s market rallying over 2%. The Hang Seng and Shanghai both closed in positive territory around 0.3% higher on the day. In late US trading, HSI is up an additional 0.5%, while China and the Nikkei futures have added an additional 1%+.

European indices got off to a healthy start with the DAX up around 1% but tailed a little into the close finishing +0.65% higher. Munich re-cut its full-year profits guidance and that was one of the reason dealers provided, but overall the markets made steady progress with many quoting oil as a primary reason for confidence returning. CAC, FTSE and IBEX were also all positive but the peripherals did rather better (Athens, ASX, closed up over 3.2% on news of additional debt relief). CAC, although positive, did underperform its peers as Natixis reported a 30% decline in (YoY) Q1’16 which sent its shares down over 7% today.

Oil was up over 3% by the time the US cash markets opened and all core indices were off to an impressive start to the session there were great expectations in early trade. However, we eventually settled for a lull in volume and prices around midday but all was forgotten as we headed into the close. The Dow closed up over 225 points; we saw 1.25% gains for both the NASDAQ and the broader S&P also. A weaker JPY (now trading with a 109 handle) and a stronger DXY (last seen 94.25) were all reasons provided for the stronger markets.

With all the euphoria of a stock market rally, we saw interesting price action in the fixed-income markets. The short end lost its bid, all be it in quiet trading, while the long end continued to perform. The 2/10 curve closed tonight at +103bp – with 10’s closing unchanged at 1.75%. There was a similar curve movement within the Bund curve where 10’s outperformed 2’s. 10yr Bund closed 0.125%; closing the US/Germany 10yr at 162.5bp. Italy 10yr closed 1.51% (+5bp), Greece 7.48% (-59bp obviously performed because of the helping hand), Turkey 9.81% (+12bp), Portugal 3.31% (+5bp) and UK Gilt 10yr at 1.40%.

Still on the agenda for this week, we have the Bank of England rate decision and Eurozone GDP on Thursday, and US Retail Sales and CPI expected on Friday.