Market Talk – October 4, 2016

With China still on national holidays (Golden Week) trading was quiet but maintains the same trend. That being stronger equity markets offsetting the weaker currency. The JPY today hit recent lows (102.50) whilst the Nikkei heads for levels not seen since Q1. The 17k level remains the intraday psychological barrier where traders feel nervous as it is approached. Once through the run-in will be for year end and the seesaw move against the JPY. Hang Seng closed little changed but will be interesting to see the effect of China Consumption Tax removal for luxury goods once the Shanghai market reopens. With many still focused on the other currency that continues to hit the headlines and that is GBP which extended the 31 year lows. Coupled with the Yens weakness the DXY was last seen 96.15 (+0.6%).

Europe remained focused on Deutsche Bank shares and after another whippy day it finally closed around 2% better. FTSE was another play on the currency with equities taking the opposite move to the currency; it won’t be long now before we see bargain hunters eyeing London property again.  FTSE +1.3% (huge benefit for exporters), DAX and CAC +1% and the uncertainty in peripherals played into IBEX with a close of just +0.2%. Italy auction some long paper (50 years) earlier in the day so that may have redirected some of the Italian appetite away. Much discussion around the metals markets today and the dramatic decline of both Gold and Silver. Gold finally broke the important support and fell 2.5% intraday. Silver suffered also closing down 5.5%.

Given the strength of the USD today it really should be no surprise that the initial move in stocks is to the downside. It will take some time for people to understand and the flow to start. The currency is the start, the assets will catch-up. More US traders were watching the DXY and precious metals than any economic indicators even ahead of the important NFP release this Friday. DOW and S+P both closed down around 0.5% whilst the NASDAQ lost just 0.2%.

Treasuries were under pressure as more talk of rate increases increase and the flow of monies into the USD increases. US 10’s closed 1.69% (+7bp) with 2’s gaining just 3bp to close 0.82%. In Germany the 10yr Bund closed -0.05% (+4bp) closing the US/Germany spread at +174bp. Italy gained 4bp to close 1.3%, Greece 8.11% (+1bp), Turkey 9.43% (+4bp), Portugal 3.36% and UK Gilt 10’s at 0.78% (+5bp). Lots of talk between dealers today that ECB could begin a gradual wind-down of its Euro 1.7tln QE programme. We should more volatility within peripherals tomorrow as this builds speculation.