Market Talk — June 29, 2016

Asia performed well in what appeared to be trading in shadows the majority of the day. Rumors that the PBOC were about to cut rates saw a rally in Shanghai (+1%) only to drift off the highs by the close. Rumors of more BOJ easing (attempting to put even 40yr bonds into single digits). It didn’t help matters when Japan missed on its Retail Sales release either (expected -1.6% but printed -1.9%) but even that could not derail today’s stock market rally that took all Asian markets better. In late US trading, Asian futures has added an additional 1%.

Europe was again the main topic around dealings floors as David Cameron rumors and speculation persists. Rumors of another referendum have finally been quashed by Cameron (again) and also by Angela Merkel. There is also talk of an ongoing battle between the European Commission and the Council as to which body negates Britain’s exit. Meanwhile, GBP is about to finish the worst quarter in eight years. We saw the FTSE outperform core European markets on the downside and today we see it outperform on the upside. FTSE closed +3.58%, DAX +1.75%, CAC +2.6% and IBEX +3.45% – “kinda” makes you wonder who is leaving who!

A nice 4%+ rally in oil, a return of confidence and lots of talk of quarter end pension rebalancing all funnelled well to support the globally led rally. A little news from FED (Jerome Powell) the first we have heard since BREXIT but he did say it could well be a drag on the US economy. However, that was certainly no sign of that today and we saw a broad market rally with DOW +287pts (+1.65%), S+P +1.65%, and NASDAQ +1.93%.

The US curve did see a little give back from the flattening bias with 2’s closing 0.63% and 10’s 1.51% (+4bp). The spread between US and Germany starts to widen again as Bunds remain bid due to the ECB’s playbook. 10yr Bund closed -0.13% closing the spread at +164bp. 10yr Italy closed 1.37% (-3bp), Greece 7.97% (-41bp), Turkey 9.07% (-11bp), Portugal 3.05% (-6bp) and UK Gilt 10yr at 0.945%.