Certainly, the markets were a lot more sedate today than they were on the first day of 2016! All eyes were on China after yesterday’s exchange close and initially, we did see a rather depressed (-2.6%) open, but only to recover within minutes. Most of the day was spent in and out of the red but eventually closed marginally lower at -0.26%. There were rumours around early in the day of official money in play supporting the market, but any type of large buy order attracted that type of comment. The Nikkei had a similar pattern in and out of the red but eventually closed -0.42%. There were plenty of rumours around for all markets but dealers were telling us that they found more confidence in that the U.S. market bounced so convincingly in the last twenty minutes.
In Europe, it was a similar story with all core indices opening stronger and trying to cling on to the gains. Unfortunately, data was not on the markets side and a poor inflation print (0.2% versus consensus of 0.4%) saw all indices turn negative mid- session. By the close, all had counter-balanced the currency’s weakness to end the day: DAX +0.26%, FTSE +0.72% and CAC +0.34%. The U.S. saw a similar price action to the global markets and after spending much of the day in negative territory bounced into the close.
Oil had spent much of the day trading down between 2 and 3%. Traders shrugged off the growing tensions and focused more on the FX market (stronger USD) and the ever increasing crude inventories. Meanwhile, we saw a rally in the gold market as rumours of Middle East buying buoyed the market. Finishing the day at $1078 (+0.35%) especially driven by the continued weakness in Chinese factory activity concerns. However, safe-haven bids tend to be short term news and the day’s highs ($1083) reached early were a distant memory by the close.
Bonds had a rather inactive session with U.S. 10s closing almost unchanged at 2.24%. German 10yr also closed 2bp tighter at 0.55%, and finally Italy closed 4bp lower at 1.51%. Tomorrow, we will see Germany tap the BKO 0% ‘17 with an additional €5bn.
The DXY (U.S. Dollar Index) closed 0.52% higher at 99.49 this evening. One of the major losers was the euro (down 0.75%) and GBP (down 0.4%). The yen seemed to be the safe-haven bid for Asian customers, actually performing against the USD by +0.25%.
Back to data tomorrow in the U.S. when we see the ADP number released (ahead of Friday’s NFP). Forecasts are for a 192k release when last month we saw 217k announced.
