With the Nikkei closed for a national holiday it was left to the Shanghai and Hang Seng to set the tone for the European markets following the weekend security fears in Belgium. Consequently, the Euro opened weak, as confidence continues to drift forcing money towards the US Dollar. Following this sentiment all European indices drifted lower in what appears to be early Christmas seasonal trading. It was profit-taking in a holiday shortened week that saw the US markets drift lower. Oil prices were initially to blame but after the Saudi comment (They are ready to work together in order to support prices) we did see a 1% bounce in prices – away from the $40 level – but equities remained heavy.
In the Fixed-Income market Europe and the peripherals all traded heavy when economic data (November flash PMI) released slightly better than expected and saw buyers backing away. Tomorrows GDP (Germany) release will be of special interest as we approach Central Bank invoked nerves. The spread between US and Germany made a large move tighter today when Bunds lost amlost a full point with US Treasuries back close to unchanged. The spread this evening was last seen at +171bp (6bp tighter on the day).
The US Dollar continues to trade well with the DXY (USD Index) last seen trading at 99.87 (+0.3%). The oil exporters and emerging market currencies continue to trade soft today. The Russian Rouble lost 1.7%, A$ -0.75%, the Turkish Lira was down 0.9% and even GBP was down -0.55%.
Some dealers were commenting that next week is probably the last busy week ahead of Christmas and consequently are already trying to position the book for Christmas. Carrying positions (especially in off the runs) is going to be expensive and capital intensive and so expect spreads between liquid and illiquid to widened even further.
