As we enter Q3 trading, markets remain nervous over trade and Europe. We still have QE disrupting bond markets and so it is not possible to acquire a clear view of risk. The ECB has been relentless in masking European government exposure and is even rumour they are participating in the FX market. New trade headlines over the weekend, saying that Europe will consider reacting to an auto-tariff amounting to possibly $300bn hit Asia today especially as the tariffs take effect on the 6th July. Adding to the negativity is the continued appreciation of the USD. The DXY is now trading with a 95 handle, admittedly heavily weighted in favour of the Euro, but the capital flow is favouring US Dollar assets. As the day wore on the selling pressure mounted on core Asia with key indices closing around 2% lower. The Nikkei lost 2.2% while the Yen hangs-on to the 110 handle. Shanghai was also hit whilst the Hang Seng was closed for holidays, but worth keeping an eye on the Yuan as it lost around 1% today on rumours that Russia has filled it boots. SENSEX managed to hold its ground reasonably well, but probably only as the currency clung desperately to a 68 handle. This looks to be turning for the moment and is about time it saw a recovery soon.
As you would expect, the European bourses were weak from the open. Actually, even though they opened lower, this created the days lows and we rallied from then on. They did not make enough throughout the day to trade positive, but was far better than the openings. Geopolitics is centre stage once again, with eyes again on Angela Merkel and the German coalition. Economic data released was disappointing with jobs and manufacturing releasing worse than expected. To make matters worse the Euro and GBP traded heavy for much of the day, but bouncing from their lows in late US trading. Core indices are off around -0.75% with currencies both losing similar ground. Gold trading lower for the day with light volume and dragged by currency declines.
In a holiday shortened week we see initial declines rejected in a similar pattern to Europe. The NASDAQ was the first of the core to trade back positive and then closely followed by the S+P and then the large cap DOW. This is an impressive open when you consider we have a half-day tomorrow followed by July 4th and then sanctions applying Friday not to be outshone by the jobs report. Currency is playing a major role in these moves and that is more evident in the soft commodity space. The trade disparity is being talked, but you can add into the mix the capital flow for safety. Emerging markets continue to suffer against the ever increasing value of the greenback and that looks to have found a solid base just now.
Japan 0.02%, US 2’s closed 2.55% (+3bp), 10’s closed 2.87% (+2bp), 30’s 2.99% (+5bp), Bunds 0.31% (+1bp), France 0.66% (-1bp), Italy 2.64% (-3bp), Greece 3.91% (+1bp), Portugal 1.75% (-1bp), Spain 1.29% (-2bp), Turkey 16.19% (+7bp) and Gilts 1.25% (-3bp).