Market Talk — May 18, 2016

Japan’s GDP showing today finally provided signs of life when the expected number of 0.1% was put to shame with a 0.4% print. However, it was only enough to rescue the Nikkei from the selling but did help to provide the days highs. By close of business the index had drifted back only to close the day almost unchanged. Neither the Hang Seng nor the Shanghai benefited from Japans positive sentiment and both closed a little over 1% lower. The JPY lost ground upon the announcement and has continued its weakness into late US trading, currently with a 110 handle. The Nikkei futures has bounced slightly on the back of the currency sell-off but is only just 0.25% higher than the cash close. Both China and HSI remain weak and have extended their losses an additional 0.35%.

Europe saw a reasonably quiet session not just ahead of the FED minutes but even in late futures trading. The majority of European hours trading was in the negative territory but managed a rally within the last ninety minutes. This closing sentiment failed to follow through and futures prices have given back all of todays cash gains.

The US equity markets could nor decide which way to run either before or after the FED minutes! The DOW and S+P traded heavy most of the day with only brief spikes toward unchanged but it was only the NASDAQ that actually closed positive. The recent sideways movement has taken time to accept the possible change in FED stance but at least we are now back to data watching rather than being concerned how the rest of the world will quibble and moan if the FED were to act independently. Given this uptick in possible confidence we saw Gold take a hit closing down 1.7% around $1255. Oil tended to drift into the US close also which had a mild effect on late core equity markets.

As you can imagine it was not a great day for fixed-income markets. The weakness in US Treasuries was across the curve but we did see a 2bp steepening 2/10 taking the curve back to +97bp as 10’s closed at 1.86%. The sell-off was not as fierce in Germany with 10yr Bund closing +4bp at 0.17%; closing the spread at +169bp. Italy 10yr closed 1.49% (+4bp), Greece 7.27% (+7bp), Turkey 10.02% (+12bp), Portugal 3.06% (+2bp) and UK Gilts (after the Bank of England spoke of a possible rate hike given employment data slightly better than forecast) 1.44% (+6bp).

We saw a large rally in GBP today after a BREXIT poll showed a large shift towards the IN campaign. The rumor this evening is that the “remain” camp has an 18pct point lead. Finally, given the FED minutes the DXY made ground this evening closing at 95.21 (0.75%) increase on the day.