The weaker USD was blamed for the rally seen in Asian stocks today, with many also saying it was about time! The mood within Asia certainly feels nervous and even with the BOJ press conference, the trend remained to purchase Yen as a safety option. Towards the close of the US session however, after a brief spell with a 112 handle, looks firmly to have rejected those attempts and has drifted back to the mid 113’s. The BOJ governor also stated that they have no intention of raising rates because inflation hits 1%, this a little after they left rates unchanged. The Hang Seng also benefitted off the back of the weaker dollar but China raised short-term rates by 10bp encouraging factory reflation.
The strong mood carried convincingly into European trading also as basic resources saw a recovery on news of fresh buying circulated trading rooms. One of the major discussions in London was the unexpected BOE split decision. A vote for a hike was very much unexpected, but that put a bid under GBP helping to record a +0.5% gain on the day. Core equities closed around +0.6% better on the day with the outlier being IBEX which gained 1.85% aided by the Dutch election result. Late in the US trading day we heard rumours that ECB’s Nowotny had commented a rate rise could be on the way and a depo rise ahead of time can not be ruled out. This certainly hit European bond markets (well, those that were still open) but will have a significant effect on tomorrow’s opening prices.
US stocks gave-up early gains maybe on these rumours but also maybe at the end of a hectic week, but still with the G20 starting in Germany. There is plenty to get excited about for the US with still talk of corporate tax cuts, earnings increases and fresh projects just around the corner. If Europe is about to return to the markets, it will be very interesting to see how far the European government bond markets can go.
US 2’s closed 1.33% (+3bp), 10’s at 2.53% (+3bp), Bunds 0.45% (+4bp) which closes the spread +208bp (-1bp). France 1.08% (+5bp), Italy 2.35% (+7bp), Greece 7.14% (+1bp), Turkey 10.80% (-19bp), Portugal 4.23% (+29bp) and UK Gilts 1.25% (+4bp).