Most of the talk yesterday concerned Europe and specifically the UK’s snap election decision by the PM, Theresa May. In Asia, we saw the reaction to the news which resulted in most core indices closing lower on the day; with the only positive from core being the Nikkei, but even then only just! The Yen continues to be the a safe haven flight for many and especially after yesterdays re-pricing of the US curve which now implies just one FED rate hike. After the decline in rates, accompanied by the weaker USD, the strip currently prices just one hike expected for September in 2017. The market also has re-priced built in optimism surrounding President Trump’s election but continues to wait anxiously fresh news on re-regulation and tax plans. Financial markets continue to demonstrate that the US remains the engine of growth despite the occasional challenge.
Europe settled after yesterdays volatile currency markets with core equities recording positive returns for the morning session. Banks coupled with basic resources that led the rally after financials continue to benefit after raising additional capital. Some of the peripheral banks saw bounces in their share price after selling some non-standard structured debt where the demand was strong. The UK’s FTSE lost -0.5% as the government was voting on the June election. CAC and DAX both produced small gains while Spanish IBEX closed over 1% better. The UK vote is being pumped as another BREXIT attempt with Labour the “Remainers” and Conservative for vote out – again! It just seems we are awaiting the result of election after election – once France is done they pass to the UK then Germany at the end of summer.
Late in the day we saw oil inventories data not as low as anticipated which resulted in an almost 4% decline in WTI. There’s always one stock that weighs on the market and today that one was IBM. Small missing results but poor sales forecasts and another fall on a monthly basis saw the stock down over 5%. Initial strength in US stocks were helped by strong results shown by Morgan Stanley but a bounce back in the USD and this hindered stocks. The FED’s Beige Book has produced a reason for traders to pause on the speed of hikes – yet again! The release was better than expected with indications that the economy continues to grow, although spending seen mixed. The DOW and broader S+P closed lower (-0.55% and -0.3%) but we saw positive returns for both the NASDAQ and the Russell 2k. The VIX has had a good run for the past few trading days closing this evening at 15 around 3.5% higher on the day. Interesting that gold has already lost the safe-haven bid and especially being hit late in the day after the Stanley Fischer comments.
2’s closed the day little changed at 1.18%, 10’s at 2.21% (+3bp), Bunds 0.20% (+5bp) which closes the US/German spread ++201bp (-2bp). France closed 0.94% (+5bp), Italy 2.26% (+2bp), Greece 6.51% (-6bp), Turkey 10.61% (-5bp), Portugal 3.77% (-1bp) and UK Gilts at 1.06% (+5bp).