Market Talk – September 19, 2016

As China opened after a long weekend, so it was that Japan was closed for national holiday (Respect for the Aged Day). There was also a computer issue in Australia that resulted in the ASX closing early. Ahead of both the FED and BOJ this week could be interesting. China added more liquidity over the weekend which set the Shanghai index off to the races from the opening bell. Moving away from the 3k level even the late wobble in western markets has left it to retrace just half of the earlier cash advance. The Hang Seng closed up 0.90% on the day and this evening remains higher together with the Nikkei futures despite the JPY renewed strength. Late this evening we have seen 101.50 trading.

We did see a confident day for Europe but it also drifted in after-hours trading in sympathy with the US markets weakness. Earlier in the day all core European indices performed well with the CAC and FTSE both around 1.5% better whilst the DAX and IBEX both closed just under 1% higher. Angela Merkel’s CDU Party suffered defeat over the weekend in Berlin state vote and was used as one of the reason’s the DAX underperformed other core markets today. The oil price set a promising rally today (over 2% with rumours of OPEC setting supporting measures) which many markets followed but were only to turn late in the US trading session.

Oil did set the early pace with all markets looking for reassurance ahead of the central bank meetings this week. However, this pace turned half way through trading when dealers started to doubt the OPEC news and a little nervous selling turned into crowd concerns and by close of business US indices were back to unchanged. With no, or very little, economic data to guide markets today we need more than sentiment to hold a 1% rally ahead of two central bank decisions.

A quiet but broadly weaker bond markets today with US curve returning a 1bp parallel shift higher. 2’s closed 0.775% (+1bp) whilst 10’s closed 1.71% (+1bp) closing 2/10’s at +93.5bp. In Europe Bunds saw 2-10’s all 1bp higher (yield) while 30’s actually fell 1bp. 2’s closed -0.665% while 10’s closed 0.015%; closing 2/10 Germany at ++68bp. US/Bund 10yr spread closed +169.5bp. Italy 10’s closed 1.31%, Greece 8.47%, Turkey 9.58% (+6bp), Portugal 3.34% and UK Gilt 10’s at 0.87%.