Market Talk – January 3, 2016

Asia has started the new year in positive mood especially after some better than expected China data. The Chinese PMI rose to 51.9 from an expected 50.7 forecast helping the core markets register a 1%+ increase today. This comes on the heels of a change in the calculating factors for the Yuan. As we reported last week the calculation continues to move away from the expensive US Dollar and will now be measured against an increased basket of currencies. This move has the potential to make Chinese exports cheaper and imports more expensive. However, the obvious impact will weaken the currency core and therefore be supportive for the Shanghai index which will be helpful as money leaves the country seeking a safe-haven. The PBOC fixed the Yuan today at 6.9552. The Hang Seng also closed stronger up 0.65% on the day.

The positive mood from Asia also spread into Europe where markets went from strength to strength. We even saw the UK’s FTSE set a record high early afternoon but drifted by the close. That did not stop the index from closing at an all-time high 7,177 (+0.5%) on the day. Spain registered the best return closing +0.8% higher with CAC also better at +0.35%. The DAX did trade higher but could not hold onto these gains and drifted into negative territory by the close. The balance for these moves was the Euro which suffered directly against the USD as we traded below the psychological 104 level yet again. The GBP was also weak losing 0.8%, Yen lost 0.9% whilst the broader DXY gained 1% on the day to close at 103.25.

Initially, the US markets saw some encouraging momentum which tended to fade towards the close. This unloved rally continues to be doubted and the new year has not changed people’s perception of the most unloved rally in many years. Oil prices traded heavy closing down over 2% but also Treasuries reversed early gains with 10’s trading back to the 2.50% level again. The stronger than expected ISM number turned the bond market, which resulted in a 3bp steepening of the curve. 2’s closed 1.21% with 10’s at 2.45%. German 10’s closed 0.26%, Italy 1.86%, Greece 6.82%, Turkey 11.20%, Portugal 3.87% and UK Gilts 1.33%.