Market Talk – December 21, 2015

In Asia, the Nikkei opened heavy on the back of a weak US closing on Friday, the continued sell-off in OIL prices and then also gave up ground after Toshiba stock declined 9.8%. Meanwhile in China, reports were running around the street that additional stimulus were soon to be announced and so encouraged a firmer Shanghai Exchange (+1.7%).

Meanwhile, in Europe despite all core markets trading in the black for a majority of the day not one could hold on to the advance and all closed in the red (DAX-1%; FTSE -0.3% and CAC -1.3%). Worth a mention here today is the weak Spanish IBEX 35 (-3.62%) today after the weekend election proved inconclusive.

In the US it was typical Christmas trading with low volume, little news and an order driven market that made the days highs in the final 30 minutes of trading. Major institutions typically engage book squaring for year-end and prefer not to report huge positions when avoidable.

Oil remains under pressure with WTI almost trading with a $33 handle at one stage this morning. The spread between WTI and Brent (Brent last seen $36.16) continues to tighten with global supplies easily out-matching a weak global demand. Gold saw a healthy rise today (last seen $1078 +1.4%) but you had a plethora of reason’s/excuse’s to choose from weak US data, a stronger US$, concerns of the speed of FED rate rises, weak oil price and finally the large option expiry at year end.

In the US Bond Market today we did see a little more curve flattening but again only small. We will be producing next year a special report on the Yield Curve Flattening we were forecasting at the Berlin Conference. The front end seems to have found its comfort level with little or no movement throughout the day. Two year notes closed 0.955% with a 2.5bp range and 10’s closing almost unchanged at 2.19% despite a small sell-off (down to 2.21%) by the close we returned to close unchanged. 2/10 curve closed tonight 123.5bp. Germany 10yr Bund closed +0.5bp at 0.555% the spread closed +163.5BP.