Extremely poor data in Japan (Tankan est -0.7% actual -0.9% Previous +10.8) weighed heavily on stocks closing the Nikkei 3.55% lower and not a great start for the second quarter. Despite the better than expected Chinese Manufacturing report (49.7 versus an estimate of 48.2) it was not enough to turn sentiment around in Asia. It did help the Shanghai Index to close higher on the day but by the time Europe had opened all dealers were talking about was Japan and lunchtimes employment report.
Asian concerns followed into Europe and ahead of the US numbers the we were looking at 2% declines across all core markets. NFP were better than expected (215k v’s est of 204k and a small jump in the rate from 4.9% to 5%). All-in-all, once the markets had settled into the trading day we saw buyers start to arrive and then a steady improvement across the screens. Oil continues to be the wildcard and especially after the Saudi comments from earlier in the day, but that did not damage the start for Q2. A reasonable Payrolls report will have a strong influence for consumers underlying the fact that more people are returning to the labour market. The DOW saw its lows early in the session and we saw triple digit gains by the close.
Oil lost ground after Saudi Arabia said that Iran should curtail production at the same time if others were expected to follow. Oil slipped on the news and by the close of the morning session was trading 2.5% lower. Concerns that the newspaper will be full of Saudi’s worry over Iran was a signal for oil traders to carry a flat book into the weekend. Further selling resulted in 4% declines on the day.
Gold remains heavy and especially as we started to see stocks improve mid-session. On the day we closed down 0.6% but was off over 1% mid afternoon trade. Silver did not benefit from the weekend rally and finally closed -2.7% on the day. Indeed, if silver breaks the 1470 level, we are looking for a serious thrust downward. Once we start to elect Weekly Bearish Reversals, the bull trap is confirmed.
GBP saw another weak day after Manufacturing PMI was released (51 from 50.8 but less than estimated 51.2) and on the heels of very poor Current Account deficit released by the ONS. Yesterday we saw the worst CA deficit in almost 70 years estimates of £-21.1bn the actual release was £-32.66bn and it really is not a surprise we see sterling lose an additional 1.1% against the USD today, closing at 1.4215. JPY saw a good day closing 0.9% higher on the day.
US Treasury market closed with very little change which is very unusual for a Payrolls Friday. 2/10 closed almost unchanged at +105bp with 10’s closing u/c at 1.77%. In Europe the German 10yr Bund closed 0.135% closing the spread at +163.5bp. 10yr Italy closed 1.22%, Greece 8.34%, Turkey 9.73% and Gilt 1.41%.
