German DAX +1.0%
The major European indices posted gains to start the trading week. The provisional closes are showing:
- German DAX, +1.0%
- France’s CAC, +0.5%
- UK’s FTSE 100, +0.6%
- Spain’s Ibex, +0.15%
- Italy’s FTSE MIB, +0.6%
In the European debt market, the benchmark 10 year yields ended mostly higher with Germany 10 year yield up 2.8 basis points. Spain’s yield were near unchanged.
In the forex market as London/European traders look to exit, the GBP is the strongest, while the JPY is the weakest. The USD is weaker after Bullard/Kaplan perhaps were little less hawkish than expectations.
VIX pulls back
Futures markets have pulled back off their lows supported by the VIX gently drifting back to 20.00. Vix is bottom right chart below.
Easy monetary policy and broad fiscal stimulus plans should keep equity markets bought on dips as mentioned earlier. Use the VIX to gauge the mood music out there and watch out for the turnaround Tuesday.
Finally the USD is showing some signs of weakness. 91.40 is key support as USD buyers should step in anticipation that tapering is coming more quickly now. USD still a buy on dips, but not worth chasing at these elevated levels.
Watch the so called ‘fear index’ and whether it can push convincingly above the marked 20.00 resistance area on the chart below . Nikkei is down a large -3.5%. If the VIX keeps grinding higher, look for further equity selling.
JPY strength continues
The JPY remains the strongest currency on the day following on from last weeks strength as positions in the GBP, EUR, and CAD were unwound against the JPY.
The AUD, and NZD also showing signs of strength, so not a classic risk off market despite the lower yields and equity futures markets.
Oil is supported on demand recovery and low inventories. The sixth round of talks to restore the nuclear deal that would lift US sanctions still sees significant disagreement. If a deal is done, then expect oil weakness in the near term, However, for now, failed talks should help the oil complex stay supported despite the wider commodity rout on a hawkish Fed shift.