The surprise rate cut by the New Zealand Central Bank earlier this morning spooked a few markets especially ahead of the ECB later in the day. The Nikkei liked the news which resulted in a +1.3% rally but that has been reversed after the wests reaction to the ECB this evening. In late US trading we are seeing the Nikkei futures -1.9% lower and the JPY trading sub 113 down -0.5%. The Shanghai cash market was weak all day but accelerated that decline into the close. After Consumer Confidence showed better than the expected 1.9% and was released at +2.3% but that was not enough to turn a bear market bull. Also, in late US trading the China 300 continues to fall with last price seen -30 points a further -1%.
Europe was just waiting for the ECB and then all the fun and games began just after mid-day. Initial reaction from equity markets was a huge (2%) rally for both the DAX and the CAC. However, that was short-lived as the press conference began he commented that that was that! Yes, they cut rates to -0.4% but said, No more rate cuts! Also reduced refi rate from 5BP to zero, increased the monthly QE amount to 80bn (from 60bn) and in corporate paper and lastly a new series of LTRO. After the surge we saw the reverse and by mid-afternoon all core indices were heading lower, eventually closing around 2% down on the day.
US markets also saw a volatile day with 1%+ swings a common occurring both in the morning and afternoon sessions. By the close of business markets really felt none-the-wiser and all indices closed almost unchanged on the day.
The same thing could not be said for either Gold or US Treasury markets. Gold saw a healthy $18 (+1.5%) rally to close just over $1270 whilst Bond prices drifted. The yield on the US 10yr opened the morning at 1.86% but were sold upon hearing the ECB news. We closed this evening at 1.93% having seen an intraday high of 1.95%. The curve performed reasonably well with 2’s and Bonds off only 3BP each while the belly (5’s and 10’s) lost around 6bp. The 30yr closed 2.70% which really was an impressive performance given they auctioned $12bn this afternoon and were awarded at 2.72% average yield. In Europe all markets suffered with German Bunds closing +7bp at 0.31%. Peripheral closed as followed:- Italy 1.45% (+4bp), Greece 8.75% (-34bp), Turkey 9.95% (-9bp) and UK Gilt 10yr at 1.54% +7bp.
