Market Talk – September 27, 2016

In general, the conclusion for trading in Asia was positive with core indices closing up around 1%. However, it did not open that way where we saw the Nikkei off 0.75% as concerns continue around the BOJ’s uncertainty. Both Shanghai and Hang Seng opened with little change but gathered momentum as the day wore-on eventually closing around 1% higher. What changed all was the Trump/Clinton live debate and the markets interpretation of a probable Clinton victory. This was enough to lift the Nikkei to unchanged by lunchtime and then add 0.85% into the close. We also saw the S+P and DOW futures trade 0.5% better as Asia took the initiative.

Upon this mornings European open it was again Deutsche Bank that was again the main talking point. Trading in Deutsche Bank shares were 3% lower by mid-morning (hitting a 52 week low) at 10.18 but did see a revival in the afternoon taking shares back to unchanged. These concerns are forcing cash into the Bund market as part of the flight to safety trade. Oil prices did not help confidence after falling 3% following OPEC meeting. Concerns also around Germany’s second largest bank, Commerzbank, also saw its shares down almost 3% after they announced around 9k jobs cuts. The rally seen as the US markets opened was enough to provide a little comfort for European trading which eventually found core markets close around -0.25% lower.

A few second tier data releases (Case-Shiller Index, PMI and Consumer Confidence) were all better than expected and could be claimed aided markets but are second tier so their effects were limited. All this resulted in a positive US closing up 0.8% across the board which is also having a positive impact on DAX and CAC futures, late trading +0.5% higher.

More US bull flattening in US Treasuries with 2’s closing unchanged at 0.74% with 10’s closing 1.56% (-2.75%). German Bunds performed even more given the continued uncertainty within the German banking community. 10yr Bund closed -0.14% closing the US/bund spread at +170bp (u/c). Italy 10’s closed 1.21% (+2bp), Greece 8.19% (-4bp), Turkey 9.43% (-14bp), Portugal 3.38% (+3.5bp) and 10yr Gilts closed 0.67% (-2bp).