Asia opened better and saw some impressive gains from the core. The Nikkei had a solid day with a near 1% gain whilst the Yen remains soft flirting with the 109 handle. Exporters and industrials led many o the advances with some banks also lending a hand. Shanghai gained an impressive 2% in todays market, its strongest in over two months. Renewed confidence and Party determination is rumoured to be the bullish factors behind today rally. In Hong Kong the Hang Seng also added another 1.3% with property, housing and energy stocks all contributing to the rally. Although the SENSEX had a positive morning, by lunch we were back almost to unchanged on the day. Afternoon trading was strong following the region and we closed near the days high adding +0.5%. INR retraced some recent losses but still remains on its bearish track.
Obviously, the sell-off in US markets came late in the day for European bourses and so they closed mixed. Almost all were better during the morning session, even as data (German business confidence) released lower than expected. Lets just get onto the late afternoon developments as this will influence Asia’s opening Wednesday. The bond market was again drifting lower (price) as US 10’s hit 3% and influenced Europe but, it was key earnings that is assisting the decline. Again, the NASDAQ has led this sell-off with Facebook, Amazon, Netflix etc. all down around 4%. 3M beat expectations but the forecast for lower numbers appeared to coincide with the 500 point hit the DOW took. It is a big week for tech earnings which will lead to more price swings in little volume. The vast majority of the S+P index have reported and were better than expected, but with volumes low exaggerated moves are here for a while. US 10’s trading 3% is having more of a psychological effect than anything else, but it is a move many have been waiting for. Probably have the traditional analysts erring on the side of caution as they tend to worry over large swings, but is best to stay calm and let the numbers you. The key will probably be the currency markets and so is worth keeping a very close eye on the DXY and emerging market currencies for the week.
The VIX has rallied 15% today, but is still trading in the teens even with the DOW down 3% YTD. The market is yet to accept the last few years rally, as we await the next big move. This is all about posturing and acceptance. Volumes are light because of this uncertainty but, the currency is telling you what to do. The capital flow remains into the US even with the current weakness in the long end bonds. Short term rates will move unabated as the FED continues to normalise the short end. So expect more of the same over the short-term.
Japan 0.06%, US 2’s closed 2.47% (u/c), 10’s 2.995% (+1.5bp), 30’s 3.17% (+3bp), Bunds 0.64% (+1bp), France 0.84% (u/c), Italy 1.76% (-3bp), Greece 3.95% (-5bp), Turkey 12.30% (+6bp), Portugal 1.65% (-2bp), Spain 1.28% (-2bp), and Gilts 1.54% (u/c).