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Market Talk – August 23, 2016

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With little help provided by the US Asia had yet another quiet summer trading session. The Nikkei opened lower but recouped losses ahead of the lunchtime break, only to edge lower again during afternoon trading. News remains light even after a slightly better mfg PMI data only managed a short-term bounce and by end of trading we were down 0.65%. The weaker index encouraged the renewed JPY strength as late this evening we trade just above par having seen sub-par trading during the day. The Yen strength always hits exporters and we saw Honda, Toyota and Nissan lower closing around 1.8% down. In late US trading Nikkei futures have regained 0.4% even as the JPY hovers around 100.

European indices traded from strength to strength as the day wore on. We saw better than expected German and Eurozone PMI releases with a mixture of readings. The Services PMI for Germany was below expectation whilst Manufacturing improved, we saw the opposite for the Eurozone. In quiet markets all economic data releases count and so all core indices we happy to take the lead. The DAX closed +0.95%, CAC +0.75%, IBEX finished +1.3% and FTSE +0.6%. Worth noting also that the DXY (USD currency Index) closed almost unchanged implying not currency related. German GDP tomorrow together with a tap of the 5yr Bund (OBL #174) after the data release at around mid-morning.

US traded better probably following Europe’s lead by never really managed to break into fresh highs. All early gains were lost and we closed the session around the days lows. Tech, Materials and Consumers were all making early ground but sadly all closed lower. Many dealers are still focused on this Friday comments from Yellen in the hope that monetary policy will be made a little clearer. Ahead of that though we will see US Jobless Claims (being a Thursday) and the volatile Durable Goods Orders; expected at +3.3% previous release was -3.9%. New Home Sales showed a huge surge today but the market was in no mood to turn and we drifted into the close.

An almost lifeless Treasury market today closing almost unchanged across the curve! It was left to Europe to provide direction and comment. US 10’S closed 1.54% (unchanged). Bunds were better bid however, along with the most of the peripheral markets. 10yr Bund closed -0.10%; closing the US/Germany spread at +164bp. 5’s underperformed on the fly ahead of tomorrow tap (currently looks around 1.5bp cheap). Italy 10’s 1.12% (+1bp), Greece 7.90% (u/c), Turkey 9.56% (-7bp), Portugal 2.97% (-2bp) and Gilt 10yr 0.54%. Super Long Gilts (30yrs) were 4.5bp better bid this evening closing 1.26% as the BOE chased prices.