www.armstrongeconomics.com
That was interesting! Obviously well trodden ground now but the DOW
futures were around 800 points lower at the time the Asian cash markets
closed. The Nikkei was down over 5% on the day and as result of market
bouncing in early US trading the futures are up over 900 points (5.75%).
The Yen traded from 105.50 down to 101.15 before bouncing again and as
we closed US cash sees it trading close to 106. Volatility was wild but
almost controlled when considering virtually the whole market was
wrong-footed. Gold bounce $70 from $1270 to $1340 before closing back
at almost unchanged. Large caps on the Hang Seng were also lower closing
around 2% lower which influenced FTSE and its opening. The Shanghai
held-in reasonably well with a decline of just 0.6% with the off-shore
currency losing 0.3%. Also, the in vogue (Trump-hedge trade) PESO
reversed recent gains and was last seen down around 9% on the day.
Europe was equally controlled crazy. What started with large money
hitting bids due to the fear ended with cooler heads evaluating the
situation especially having heard Trump’s humbled speech. It looked as
though this was the moment the market accepted him and started to accept
his infrastructure plans. We quickly saw all declines reversed and then
make ground upon the realization that so many clients have been sitting
on the side-lines with plenty of cash to spend! All eyes will be on the
Italian vote next.
It was the US market that everyone was concentrating on from dusk
until dusk! Many traders were at their desks for 24hours but with very
good reason. Banks feared the volume would not match the volatility but
there were records matched almost everywhere. The reversal we saw in the
S+P was the largest since the 2008 crisis eventually closing 1% higher
on the day.
Bonds have been heavy everywhere and it really should be no surprise
to anyone. One dealer commented, “This is the end of QE”. How would it
be possible to QE when the largest economy in the world is raising
rates? If it did not hit your bond market it will have double the effect
on your currency. So why would internationals wish to receive fixed if
they expect a huge currency hit! US 2’s closed 0.89% (+3bp) but with
10’s at 2.06% (+21bp) +117bp, sees the 2/10 curve steepen the most (in a
day) for over 7 years.
Other than the Bunds the other European yields
will be too low when compared to the US closes. Bunds were last seen
0.2% (+2bp), Italy 10’s closed 1.75% (+3bp), Greece 7.21% (+10bp),
Turkey 10.26% (+19bp), Portugal 3.25% (+6bp) and UK Gilt 10’s at 1.25%
(+2bp).
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