Market Talk – January 10, 2017

After the holiday in Japan yesterday the JPY resumed its strong recovery and with it saw a decline in the Nikkei. The yen traded close to the 115 handle whilst the Nikkei lost 0.8% on the day. Concerns are still that the DOW continues to reject the 20k level and is having a psychological effect on markets that have recently experienced strong returns. Despite the lower than forecast China CPI (2.1 v’s 2.3%) the PPI beat the expected 4.5 to release at 5.5%. Shanghai traded lower (down -0.3%) but the Hang Seng faired better closing up +0.8%. Energy had a dampening effect on most markets with prices down near 4% at one stage. The Yuan weakness returned after a brief respite closing over the 6.900 level again.

The Euro was weaker initially following GBP, down nearly -0.5% at one stage, but recovered as the day wore on. As you would expect the UK’s FTSE performed best but only balancing the currency decline. DAX and CAC were barely positive, closing a touch firmer, whilst the IBEX suffered as banking stocks weighed heavily on the periphery, Portugal PSI index fell 1.3%.

We saw another record set for the NASDAQ as yet again the DOW fails to breach the 20k level. Investors are clearly unhappy taking the broader market too high ahead of Trump speech (scheduled for tomorrow morning). Nervous trade continues with patchy orders driving volume. We have seen recent buyers returning to the long end of the treasury curve looking for yield, whilst the short-end and belly underperforms. Still early in the year with many hoping we see a retracement as it remains the most unloved rally in modern thinking.

US 2yr notes closed unchanged at 1.19% whilst 10’s and 30’s both gained 1bp (price/loss of yield) to close 2.375% and 2.955%. German bunds closed 0.285% (closing the US/German 10yr spread at +209bp. Italy closed 1.91%, Greece 6.72%, Turkey 11.19%, Portugal 4.01% and Gilts 1.36%.

Investment and financial consultancy services are offered on behalf of Armstrong Economics. PEI does NOT provide personal guided advice for any individuals regardless of residency or nationality. PEI provides forecasting based upon objective computer models in most leading financial centers worldwide through its affiliates and/or representative arrangements. The information provided is believed to be reliable, however accuracy and completeness are not guaranteed. This information is offered to professional investors and institutions. PEI does trade on a proprietary basis in selected markets around the world. PEI accepts NO managed accounts on behalf of any individuals no matter the country of residence or origin. PEI predominantly engages in hedging contracts and currency overlay business on behalf of business and institutions. Individuals seeking to use the forecasting services of PEI should seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content relative to their personal financial investment situation. Keep in mind that a forecast in the local currency of that instrument may prove to be correct but a swing in the underlying currency can make that same forecast dangerous to someone investing in a different currency.