Europe has seen a steady start ahead of the US numbers but as we approach the release FTSE has gained 1%, CAC and DAX are both around 0.5% better whilst the IBEX trades marginally lower. Earlier in the day we saw Eurozone Retail Sales disappoint releasing at 1.4% against an anticipated 1.9%. From here it all changed:- Headline Number 38k; Rate is 4.7%
This was a total shock for markets and immediately we saw Bonds higher, Stocks lower, Gold rallied and the USD was hit for six. Many are calling it a fluke or a one-off number but it presents opportunities from all sides. FTSE did manage to close still higher but halved its gains to close +0.4%. DAX, CAC and IBEX all doubled their losses to close down 1% DAX and CAC and a 1.8% decline for the IBEX.
An interesting reaction for the US major indices after the huge NFP miss was followed by the ISM at 52.9 after last months 55.7; equally the employment component miss. We did see a weaker market but there was very little follow through selling. European stocks took more of a hit and US core closed only marginally lower. DOW, S+P and NADAQ all recorded losses of between 0.2% and 0.6%. VIX declined to 13.4 which also surprised many. In late US trading the Nikkei lost an additional 2% from the Asian cash close.
Dealers are questioning the possibilities that the FED still moves in June but the market re-priced the odds (from 55% down to 5% likelihood)! Bond market everywhere saw renewed buying and with enthusiasm for the belly (5yrs) and front end of the yield curve. US 2’s traded down to 0.77% (-12bp) with 5’s declining 13bp to 1.23%. 10’s closed 1.70% a decline of 10bp on the day. 2/10 curve closed +93bp. In Europe German 10’s traded at 0.065% a 4.5bp decline in rates; this closes the US/Bund 10yr spread at 163.5bp. Italy closed 1.33% (-4bp), Greece 7.13% (-1bp), Turkey 9.34% (-24bp), Portugal 3.14% (u/c) and UK Gilt 10yr closed 1.27% (-7bp).
Gold rallied as a safe-haven bid closing up 2.5% at $1245. It was the move out of US Dollars that many were talking about this afternoon as the JPY traded down to 107.65 (2.3% move on the day. The Euro also broke higher climbing two big figures to trade 1.1365 (2.2%) which saw the DXY close 1.76% lower at 93.88.