Market Talk – September 2, 2016
The Nikkei and Hang Seng closed virtually unchanged in anticipation of the US lunchtime numbers. The Hang Seng was the best performing Asian index closing up 0.45%. It was always going to be about the US Payrolls even as Europe opened marginally better bid. Overnight we had seen the USD take a bit of a breather and saw oil (++2.5%) and gold (+0.75%) both recovering from the past few days weakness.
Expectations for the NFP’s were for a +180k print and an unchanged 4.8% rate. However, what we saw was a +151k and a 4.9% release. This will probably surprise the FED a little but remember that the Aug jobs number is the most revised of all months so will be eagerly watched come the October numbers. The market had priced in almost a 30% chance the FED would move this month but that has reduced to around 23% in late US trading. Interesting how the markets took the news! Had we seen this several years ago the equity market would be lower and Treasuries bid across the curve. This evening at the close of the day stocks close higher, bonds have lost ground and core European indices have closed close to 2% a piece. DXY initially saw selling upon the release but managed a higher close at 95.87 (+0.22%). A key currency component (JPY) again playing, in late US trading, with the 104 handle which, in turn, has produced a strong futures rally in the Nikkei last seen +1.25%.
Bonds went bid on the numbers but suffered the balance of the day with long liquidations the talk around many trading floors. Bonds lost ground on both sides of the pond but also saw JGB’s coming under pressure late in the day. The US curve steepened as 2’s lost 1bp (closing 0.79%) and 10’s off 3.5bp to close 1.60%. In Europe too Bunds suffered after the knee-jerk response then saw selling. 10yr Bund closed -0.05% (-3bp) to close the US/Bund spread at +165bp. Italy closed 1.17%, Greece 7.93%, Turkey 9.53%, Portugal 3.01% and Gilts 0.72%.
