Market Talk — July 6, 2016

Not a great session for Japan or the Hang Seng with both down around 1.5% a piece. Shanghai managed a better performance closing marginally higher having spent all day meandering around unchanged. The main talking point in Asia was again BREXIT and the GBP under performance so far. Setting another 31 year low (1.2795) concerns grow as more property funds closed for withdrawals. Given the Nikkei’s fall the JPY rallied but fell short of breaching the psychological 100 barrier.

In Europe, all core stock indices were hit with the worst performance seen in in France (CAC down 1.9%) but then DAX and IBEX were extremely close – down around 1.7% each. It was FTSE’s turn to tumble despite the weaker GBP. FTSE actually closed -1.25% in additional to the currency’s 0.9% decline. Turbulence continued in the Italian banking sector after the Italian watchdog (Consob) banned short selling of BMPS (Banca Monte dei Paschi di Siena) shares. Immediately, we saw a 13% rally but had drifted back to +5.5% by close of the exchange.

UK had a busy “political” day after the results of the Chilcot enquiry. The report slammed the invasion and was heavily critical of the then Prime Minister, Tony Blair. Did not immediately affect the market or currency but could have a damaging effect going forward.

The US session was weak from the opening following Europe’s lead but started a bounce just ahead of the FED June minutes release. As expected, BREXIT was mentioned as a concern for the FED as the unsettling effects continue to weigh on US and global growth. A healthy bounce in core US indices and this evening we are looking happily at a strong USD, Stocks and an unchanged Bond market, even though we are off the lowest yields in a while.

US 10yr Notes were last seen 1.37% (-0.5bp) flattening the 2/10 curve to 79.5bp. German bunds closed -0.17.5% closing the US/Bund spread at +154.5bp. Italy 10yr 1.24% (-2bp), Greece 7.76% (+2bp), Turkey 8.88% (u/c), Portugal 3.03% (+4bp) and UK Gilt 10yr 0.76% (-1bp). BoE next week and money market pricing in the chance of 85% probability that we see a cut in rates. Ahead of that we have supply from UK and Spain, US ADP tomorrow and NFP on Friday.