We knew what to expect from the Nikkei cash this morning after we heard remarks late Friday and Saturday from all at Jackson Hole. On Saturday it was BOJ Governor Haruhiko Kuroda who said he would approve further monetary stimulus without hesitation! Having seen the Nikkei futures up 1% and the JPY weaken by 1% this morning’s cash openings gave domestic players the chance to catch-up. The Nikkei closed the session up 2.3% the best one day rise in a while with large exporters (Honda, Toyota etc.) showing strong gains in and around the 4% mark. Shanghai and Hang Seng saw small moves but in late US futures trading both have reversed earlier flows and are currently both up around 0.4%.
In Europe the UK Bank Holiday had a dampening effect on cash markets but even so, all core indices closed around 0.4% lower on the day. The oil price certainly felt like it had an effect but then the Euro and GBP were also under pressure so now you think there is something else at play. We heard from a few dealers today that money is starting to believe the US revival story and cash is finding its way there. Price action supports this view but then this is the trend that is in play at the moment.
The PCE numbers in the US today (although in-line) helped sentiment as we saw strong price action across the board. The market is now talking FED hike means there must be a reason! Therefore, instead of concerns around, a hike may slow the market down, now the interpretation becomes, “This could be the start of more”! This has been the most unloved rally in many years and many are concerned if the numbers are good on Friday – it will be too late and the end of the year is close. Talking point was surrounding the US Dollars strength as we even saw Treasuries rallying with stocks.
US 10YR closed the day 1.56% making the decline in yield around 7bp. The curve flattened with the buying concentrated in the long end as demand continues to chase government yield (30’s declined 8bp to close 2.22%). German 10’s were almost unchanged today seeing just a 1bp rally in price. Closing at -0.08% the US/German spread closed +164bp. Italy 10’s closed 1.11% (-1bp), Greece closed 7.86%, Turkey 9.62% (+12bp political uncertainties shaking the market), Portugal 3% (-1bp), Gilts 0.56%.
