Despite a positive opening in the Nikkei, that sadly was not to last and eventually finished unchanged on the day. Exporters were the initial driver of the strength on the back of a weaker Yen (high 111’s), however, a lack of any follow-through and lower peripheral markets, sentiment just drifted with the days volume. Shanghai and the Hang Seng were both lower from the opening and spent the day hitting bids. Energy, technology and real estate companies traded heavy today as investment withdrawals from emerging markets appears to be spreading all around the globe. The SENSEX was very much a similar pattern, but was industrial metals, financials and technology that lead the selling pressure. Obviously, the INR breaking into a 71 handle is spooking a lot of investors and is justifiably doing so as this move has only just started.
European bourses obviously did not like the fact that US markets resumed their slide late and that Asia could not reverse its cash flow, which resulted in a lower trend for the day. In general, the mood has been hesitant and tentative as nerves spread quickly from emerging market to emerging market. The Turkish Lira slide over 4% today upon rumours of key central bank executive resignations, but this just seems to be negative news after negative news. In late afternoon trading news that the Argentine central bank raised rates to 60% to protect the currency certainly added to emerging market fears. Core Europe closed down around -0.6%, but saw FTSE MIB and IBEX both off over 1%. These fears are being witnessed in the peripheral bond markets where both Italy and Greece saw their spreads widen again today. Both Euro and GBP begin their reversal to the US Dollar which will be interesting for Fridays month end close.
Argentina was again the talk on dealers desks after they raised rates an additional 15% today (to 60%), in an attempt to stem the Peso’s decline. This attempt however failed, and results in the Peso claiming the Lira’s crown of worst performing currency for the year. With todays fall this takes the YTD decline of over 50% against the dollar. Domestic stocks rallied as a result and closed on average 5% higher. All this activity just tended to put a bid under the stock market, driving support for the broader indices. Although all core indices closed down on the day, in comparison to almost everything else – they managed very well. Tomorrow is expected to be thin on volume again, as the holiday weekend will eat into fresh investment. Month end numbers will be closely watched, but looks to be set for some consolidation at marginally lower levels, but lets watch the close.
Japan 0.09%, US 2’s closed 2.65% (-3bp), US 10’s 2.85% (-3bp), US 30’s closed 3% (-2bp), Bunds 0.34% (-6bp), France 0.69% (-4bp), Italy 3.20% (+8bp), Turkey 20.69%, Greece 4.32% (+14bp), Portugal 1.91% (+2bp), Spain 1.46% (u/c) and Gilts 1.45% (-3bp).