Market Talk — June 21, 2016

The majority of the volatility within Asia appears to be concentrated within the Nikkei and the JPY. The Nikkei opened around 1% lower as the currency gapped to the 103 handle, but by the afternoon session it recovered as JPY retraced. Shanghai really could not provide any guidance as that market continues to drift lower. Even in Asia, the consensus remains firmly fixed on BREXIT and even this evening’s address by Janet Yellen will be overshadowed.

Dealers were questioning today whether UK remaining within the EU has already had its euphoric rally, given the sway seen in recent polls and the markets reaction. Late this evening, the core safe-haven bids are receding (gold down $20 or 1.5% and bonds steepening back out, the DXY and its recent loss) all this and we are not a vote has been cast yet! Positive day for DAX, CAC, IBEX, and FTSE (all up around 0.35%) probably helped by a better than forecast ZEW release at 19.2 compared to a previous 6.4 previous month.

The US markets were waiting more direction from Yellen’s congress address but being so close to the recent FED meeting, not that much was expected. Market players are certainly looking for direction but were disappointed if they were waiting for tonight’s address. A modest gain for all indices on the day and we saw a small increase in the VIX (up to 18.5) but even in the US dealers main focus for the week is Thursday’s BREXIT vote.

Treasuries continued to drift even as we heard Yellen’s playbook and their concerns surrounding domestic and global matters. 2/10 steepened 1bp to close at +96bp with 10’s closing at 1.71%. In Germany 10’s closed 0.05% (-1bp); closing the spread at +166bp. Italy closed 1.44% (+2bp), Greece 7.7% (+10bp), Turkey 9.38% (+6bp), Portugal 3.14% (+2bp) and UK Gilt 10yr closed 1.28% (+5bp).