Comment – Sanjiv Shah

Markets were quiet yesterday as it was US bond market holiday. The Dow, the S&P 500 and Nasdaq all
fell by exactly 0.32% though European indices had closed higher. Asian Indices are little changed but China
and Japan (which had risen for six prior days) are lower today. Bonds yields are little changed with US
Treasury 2 and 10 year Bond yields are 0.87% and 2.34% respectively. This is not surprising as the US
Treasury Bond Market was closed for Veteran’s Day. European bonds did perform well with 10 year Bund
yields down 1bp to 0.62%.

Commodity Prices
Commodity prices have started falling again in the last week with various prices dropping to new lows as shown
in Bloomberg Commodity Index chart below:

Metals were weak with Silver (-0.73%), Platinum (-2.07%), Zinc (-2.25%), Copper (-0.78%) and Lead
(-1.51%) all declining. Copper prices have fallen further below the USD 5k per tonne and are currently
trading at USD 4943, the lowest level since September 2009.

Oil also fell with WTI finished the session -2.90% to close back below USD 43 a barrel for the first
time since August 24th. Oil prices and energy stocks fell after the latest American Petroleum Institute
numbers showed inventories rose by 6.3m barrels last week (expectations were just 1.1m). There
was also news of a pick-up in supply from Iraq and a forecast for higher US production.

ECB
The rumours of a larger than expected ECB asset purchase programme continue to grow.
Yesterday, newswire indicated the ECB will move to buy debt of cities and municipalities as part of its
asset purchasing programme early next year. The total market of such bonds is about USD 500bn
but it would be, if true, another indication of further expansion of bond buying to combat the asset
shortages that have already been created by the current buying programmes.

Australian Dollar
The Aussie dollar which has fallen about 30% in the last six months on the back of the fall in
commodity prices rose nearly 2% today after excellent jobs data was reported. This is widely seen as
reducing the pressures on the Central Bank to ease further.

Outlook
In terms of European data, October German CPI today as well as Eurozone area industrial production
print is also expected shortly after these. The ECB’s Draghi is set to speak to lawmakers in EU
parliament this morning while the Bank of England Chief Economist Andrew Haldane is also due to
speak.

Risk Markets are opening slightly lower in Europe and look set for a slightly positive day in the USA.
Outlook

Latest Update: Dec 17, 2015