Martin Armstrong
Armstrong Economics
Neither the Nikkei nor Hang Seng could decide on a direction today as both flip-flopped between positive and negative territory. Only Shanghai was to remain lower for the whole day closing well above the days lows but still 0.5% weaker. Yesterday we heard that the PBOC added (through 14 day reverse repo’s) cash into the system, the first in around six months. Interesting that they did 14 day repo’s as there is also talk they may extend to 28 day and even longer. This just relaxes any pressure there maybe on the short-term market by extending along the tenor. Will also be viewed as negative for the currency, so watch for JPY as it may have an impassive tie.
In Europe we had German IFO released which provided the mornings direction. Expected at 108.5 the actual number came in way under at 106.2, which weighed on stocks for the remainder of the day. The DAX, at its worst, was down around 1.2% but recover some of that into the close to end the day -0.9%. Sentiment not just in Germany but much of Europe remains lethargic but many are hoping for direction to be supplied tomorrow. Ahead of Janet Yellen we also have German Consumer Confidence, Japanese CPI, Italian GDP and a second look at US GDP. . Many dealers are hoping we have some play ahead of the weekend. CAC and IBEX were just as heavy closing around 0.8% lower. FTSE held-up a little better (-0.3%) but then the currency did lose an additional 0.5% too.
US opened with only minimal losses but soon made it back to unchanged. Volumes were again extremely light despite much talk surrounding the FED’s potential move in sentiment tomorrow at Jackson Hole. We had economic data that was better than forecast with Durables coming-in at +4.4% when estimated was only 3.3%, which did pick the market off the lows. Volumes and movement however were extremely limited as we await forthcoming events.
The Treasury market has started to show some nervousness as we saw weakness at the front-end today. 2’s gave-up 3bp with 10’s only 1bp; closing the 2/10 curve at +79bp (10’s closing 1.58%). German Bunds were 2bp weaker closing at -0.07%, closing the US/Germany spread at +165bp. Italy 10’s closed 1.13%, Greece 7.89%, Turkey 9.50%, Portugal 2.95% and Gilts 0.57%.
There is a lot of talk surrounding Saudi Arabia’s proposed USD Bond offering. Rumours are to expect $10bn 10yr issue priced somewhere around IRS+200bp (Pricing very sketchy at present). That is where the demand is for quality credits, especially given that 2/30’s is the flattest it has been in over seven years.
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