Market Talk — June 27, 2016

As we expected weekend headlines would dictate Monday’s trading and that is exactly what we have seen. The GBP continues to fall spreading uncertainty and confusion around the globe. In the UK the opposition party (Labour Party – known as the Shadow cabinet) saw ten members resign on Sunday and an additional nine members resign today. All are calling for Jeremy Corbyn’s resignation. Asia saw safe-haven demand from the open with JPY (hearing targets in the street of 95), Gold and US Bond(s) strength but also good demand for the Nikkei (up 1% at the open) and a steady Shanghai stock market. In late US trading, the China300 and Nikkei are off another 1% with HSI suffering an additional 2% decline.

Asia saw safe-haven demand from the open with JPY (hearing targets in the street of 95). Gold and US bonds strengthened but also good demand for the Nikkei (up 1% at the open) and a steady Shanghai stock market. In late US trading, the China 300 and Nikkei were off another 1% with HSI suffering an additional 2% decline.

By the time Europe opened GBP and euro had not bounced and so as London opened GBP was down 2% with the Euro 1% lower. As the markets opened the UK Chancellor, George Osborne, attempted to settle things by addressing the press and claim there was a contingency plan and everyone should “Stay Calm”! Hmm, didn’t really have the desired effect and GBP lost another 2% closing around 131.80. Late in the day, S&P downgraded the UK’s credit rating from AAA to AA. DAX lost around 3.1%, FTSE lost 2.55% and IBEX and CAC lost 1.8% each. Again we saw bank shares hit with Barclays and RBS both down around 17% with house builders and travel (Easyjet -22%) companies around 15% lower.

The US market was weaker from the start as confidence continues to be hit following the BREXIT hit. Sellers from the open eventually saw the DOW over 300 points lower at one stage. We did bounce a little but the broader S+P played around the psychological 2k market only to settle almost exactly on it -1.8%. Economic data really is falling into insignificance as the uncertainty persists, driving money further into the bond markets.

The US curve flattened even further today taking the 2/10 down to 84bp (10’s closing at 1.44%). This moves the US/German 10yr spread to +155bp (German 10yr Bund yields -0.11%). Italy closed 1.50% (-4bp), Greece 8.48% (+17bp), Turkey 9.29% (-20bp), Portugal 3.26% (-4bp) and UK Gilt 10yr at 0.93% (-15bp) 10yr under 1%.