What appeared to be an uncertain start turned into smiles and hugs all around. The Nikkei opened unchanged and drifted into the red for a short time until the weaker JPY helped exporters and even late in US trading remains above the 104 handle. Shanghai also went from strength to strength and the Yuan continues its drift and a little weekend profit-taking lifted prices together with sentiment. In late trading all core Asian indices remain firmer. Earlier additional Chinese data helped revive confidence after we saw a 1.9% print for September CPI, which still estimates a 6% growth rate.
Europe just accepted the Asian bounce and was happy to run with it. Initially, all core indices were equally matched up around 1% but it was FTSE that broke that mold. The UK economy has been a hot topic again today with comments from BOE governor Mark Carney, surrounding the level of GBP and the tolerance for a higher rate of inflation. Not what the Gilt market wanted to hear and consequently saw 10’s add 7bp to the price. All considered, FTSE ending up peaking around midday then returned much of the mornings gains to close +0.5% firmer whilst the rest of core Europe (DAX, CAC and IBEX) closed around 1.5% firmer.
The US markets all followed the happy Friday feel with DOW cash gaining near 200 points at the opening. These gains certainly lost momentum in the afternoon trading despite Retails Sales hitting expectation and Producer Prices. It was the Consumer Confidence number (87.9 against an expected 92 forecast) that shook the rally. Next up we heard directly from Janet Yellen who posed more questions than provided answers. There were many that thought the Fed Chair aired the debate but did offer her own view that a stronger US market would have repercussions around the rest of the world.
The US treasury market did not like what it heard as 10’s broke the days 4bp range trading to the highs around 1.80% (+5bp). This move saw more steepening of the curve and this evening closed 2/10’s at +96bp. This late move will not play out in Europe until Monday but Bunds did drift slightly in sympathy, closing 0.06%; puts spread at +174bp. Italy 10’s closed 1.38% (+1bp), Greece 8.22% (-2bp), Turkey 9.71% (-4bp), Portugal 3.27% (-7bp) and as stated earlier the worst performer of the day was UK Gilts closing 1.09% (+7bp) and an additional 0.65% decline in the GBP. The EURO also suffered in late US trading closing below the psychological 1.10 level at 109.70 (-0.75%). These moves culminated in the DXY closing near recent highs at 98.10 (+0.75%).