Market Talk – March 17, 2016

The Asian markets responded quite positively to the FED’s unchanged decision yesterday with HSI and China Main trading a little over 1% higher across the board. The Exporters did not fare so well, as such, Japan closed a little lower (-0.22%) on the back of a stronger JPY (+1%). China moved the yuan mid-point from 6.5172 to 6.4961; which really was not much of a talking point.

In Europe, we saw the initial burst from cash markets reflecting the FED’s decline from four to two potential rate rises but from then most core indices drifted into the close. DAX and CAC both closed lower on the day whilst the IBEX and FTSE managed small gains. Confidence was hit after the Norwegian CB cut rates from 0.75% down to 0.5%, especially after the FED’s reflection on rates the night before! Energy was the main support throughout exchanges given its renewed vigour over the past two months but that has been dented by banks sudden realization that lower rates will eventually hurt! The peripheral banks are waking to the point that the ECB will need to draw a line, at some stage, in asset quality purchases. Now that the Central Bank is competing directly with corporates for cash the depletion of the middle ground will accelerate. The Italian Bank Banco Popolare fell over 10% today.

The weak USD and a market friendly FED has seen stocks finally making gains for 2016. The DOW closed 155 points higher this evening closing +0.9% on the day. The broader S+P and NASDAQ both made ground closing +0.6% and +0.25% respectively. The VIX hit levels (14) not seen since last November (2015).

The USD Index (DXY) continued to lose ground today, after it was hit yesterday – closing this evening at 94.81 (-1.1%). All core currencies made ground with Euro and GBP both making around  1.25% intraday. WTI managed an almost 5% increase to close the day above the psychological $40 mark. One reason why the Russian Rouble gained 3% against the USD today (closing around 68.10).

US Treasuries saw a revision to yesterdays steepening when 2’s drifted and 10’s performed. The two year note closed this evening at 0.865% while 10’s closed 1.90% (2/10 closed +102.5bp). In Europe German Bunds closed 0.23% (spread US/Germany closes +167bp). Italy 10yr closed 1.27% (-6bp), Greece 8.47% (-12bp), Turkey 9.80% (-24bp) and UK Gilt 10yr closed 1.45% (-7bp).