Market Talk — August 2, 2016

$278bn and the market is still disappointed! Despite the package provided by the Japanese government today late futures trading has followed the weaker cash market and extended losses by another 2%. Confidence is slightly dented as the market was hoping we would see the helicopter approach and that is why the market continued to sink and the JPY approaches the 100 level given there is no bazooka to be seen. China was really a side story today, together with the expected RBA rate cut but given all the action concentrated within Japan with Hong Kong restricted by adverse weather conditions.

In Europe it was banks that were again centre-stage. BMPS down 16%, Unicredit down 7%, UBS down 6%, Commerzbank down 9%, and Deutsche Bank -4% these make Barclays, RBS, and HSBC down between 2 and 3% look good! Coupled with the price decline in oil today, around 1.5% and through the $40 level, confidence and summer trading is having a larger impact on sentiment than would otherwise have. When Europe closed the US markets were playing around the days lows and so we close core European indices 2% lower DAX and CAC, with a 3% decline in IBEX with UK’s FTSE marginally holding just 0.8% off due to currency movement.

US markets attempted early session to hold small losses but as oil continued to decline, Personal Consumption released below expectation and Bond yields rising across the globe it should be no surprise that nerves start to hit the stock market. All core indices closed off of their lows but still in negative territory of around -0.6% lower on the day and with the VIX climbing over 8% to 13.5. We still have plenty to play for this week with ADP released at lunchtime tomorrow with the Non-Farms expected on Friday.

US Bonds saw a steepening theme throughout the day with safety sort in the front-end (as stocks declined) whilst 10’s and Bonds suffered from liquidation. The 2/10 curve steepened 4bp to 88.5bp ending with 2’s 1bp lower at 0.67% whilst 10’s gained 3bp to close 1.56%. European bonds wee all under pressure today with the German Bund price falling and gaining 3bp to close -0.03%. This closes the US/Germany spread at +159bp. Italy 10yr closed 1.21% (+3.5bp), Greece 8.08% (+5bp), Turkey 9.51% (+4bp), Portugal 2.90% (+2bp) and UK Gilt 10yr at 0.8%.