Market Talk — July 8, 2016

The continued decline in the price of oil, US markets having turned mid-session and you have the makings of confidence deficiency – which is exactly what we saw for Asia. By the open dealers were looking for the bid and that never really changed. Nervousness for the US data so it was absolute certainty that the markets were looking for an impressive print in order to stand a chance of turning sentiment. Japan’s May C/A (current account) fell 3.7% from previous month which aided but not much the strong JPY.

Having suffered a rough week it was a little book-squaring ahead of the US numbers, so markets were better bid ahead of the numbers. DAX, CAC, IBEX and were all trading around 0.75% better as we approached release. Expectations were for around 175k so a 287k and a rise in the (from 4.8 to 4.9%) saw encouraging moves all around. The DXY (USD Index), Stock market, Oil and even the US treasury market all rallied after the release. DAX, CAC, and IBEX all closed around 2% better whilst the FTSE managed just 0.9%. BREXIT still weighs on the UK and even while we awaits the new Conservative leader announcement, GBP takes the zest out of the balance.

US Futures were pricing in a better Friday trade but the added support of the BLS data supplied the boost that enabled the markets to attain new highs. The DOW traded over 250 points with the S+P saw intraday all-time highs and trading on good volume. VIX traded off to 13.8%, with Treasuries playing near record low yields. With all core indices closing around 1.5% chances for setting new highs next week look extremely likely. Many dealers are claiming one number does not dictate a trend but it does open the debate for a July hike possibility.

More curve flattening this afternoon with 2/10’s closing at +75bp (10’s at 1.36%). In Europe, we again heard more talk of ECB expanding QE (at the request of the IMF) – if inflation is not forthcoming! 10yr German Bund closed -0.19% (-2bp) closing the US/Bund spread at +155bp. Italy 10yr closed 1.19% (-5bp), Greece 7.76%, Turkey 8.95% (+7bp), Portugal 3.05% (+1bp), and UK Gilts 0.73% (-4bp).