Market Update - 7 Sept 2012

“Outright Monetary Transaction”. That’s the name of Draghi’s bond buying plan which he announced last night to much fanfare, although it was exactly the plan that was leaked to the market yesterday: unlimited purchases of 1-3 year paper, sterilised, not senior and conditional upon bailout request. They left the benchmark overnight rate at 0.75%, a cut to 0.5% had been expected.

The Euro fell initially during the speech, hitting a low of 1.2562 before surging back to a high of 1.2652, the highest since June, before reverting to the technical level at 1.2630 (last). Break this level and we’ll head for the 200ma at 1.2840.

USDMYR still uneventful and sticky with the range as we expect to have another quiet session and     yes the same 3.1000-3.1500 range still, currently trading at 3.1000, would be interesting to see if it can firmly break this level after testing it 2 weeks back

So the ball is in Spain’s court now but it was one way traffic down the risk on street for all asset classes, with good US data helping us along (see below). The S&P closed at its highest level since 2008 at 1432.60 , rising 2.04% on the night,  and the NASDAQ the highest since 2000!! Meanwhile European equities all surged with the Stoxx 50 up 3.4%, led by Spain’s IBEX (up 4.91%).

Treasuries sold off, as did bunds and gilts (all down 7-8bps). Gold closed above $1700 for the first time since March (last $1701.35) but oil struggled after early gains, it fell 0.62% to $94.74.

Spain sold €1.43bn of 2015 bonds at an average yield of 2.676% versus 5.086% at previous auction, €1.39bn of 2016 bonds at 4.603% versus 5.971% last time. The auction took place before Draghi spoke and showed the effect rising confidence in the ECB as a backstop is having. 10 year yields fell 40bps on the night to 5.96%.

Data in the US was generally positive too, the ADP payrolls figure showed a gain of 201k jobs     (survey was 140k) in August (the most since March) and the ISM non-manufacturing index rose to 53.7 from 52.6, beating expectations of 52.5. As with the manufacturing index on Tuesday, the component that rose the most was prices paid which shot up to 64.3 from 54.9.

The Bank of England left rates unchanged and did not add to their asset purchases, as expected     (they haven’t finished buying the last lot yet).

Aussie bonds got a spanking overnight, with 3yrs being given on the close to go out on their low at 47/48, down 10 but not much volume in the last few ticks

10yrs were down 8.5pts to 91/91.5 on the close (the low) with the curve taken at 56.5 on the close, going out 56/57. Strong volumes all round.

The Aus/US spread bottomed out at 133 before coming back to 141 last. The AUD rose a big     figure to 1.0286 last