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Market Talk — July 13, 2016

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Asia gapped open higher on continued strong sentiment brought forward from Abe’s election landslide victory weekend. The Nikkei saw a 1.4% rally at the open but was subject to profit taking as the day wore on. The JPY rejected the 105 handle and is seen in late US trading back towards the 104.30 level having earlier helped exporters, we may see a reversal of that trade overnight. The HSI and Shanghai were also stronger around 0.4% each and so had helped support the favorable Asian move.

In Europe, economic data releases were quite disappointing with poor CPI numbers for France (expected 0.2% but actual was 0.1% m/m) and Eurozone Ind. Prod. expected -0.8% when actual release was -1.2% m/m and with y/y missing even more (1.4% and actual 0.5%). Despite the data the markets closed only small lower as trading seemed quiet ahead of Bank of England announcement due tomorrow and a slightly stronger Euro. In the UK Theresa May took office with many cabinet changes which the inclusion of Boris Johnson and the Philip Hammond as Chancellor following George Osborne’s resignation. GBP saw a turnaround from the rally seen over the past two days and this evening closed 0.8% lower against the USD at 1.3140.

The US, by comparison, had a rather dull day with prices meandering around yesterday’s closing levels and in thin volume. We do see Producer Prices, PPI and being Thursday the usual Jobless Claims tomorrow in the US. All of this ahead of Fridays Retail Sales, CPI, Cap Util., and a host of other economic releases which has the potential to see volatility into the weekend.

History was made today when Germany issued 0% 10yr German Bunds at a negative yield. With an auction average of -0.05%, but well off the lows seen a week ago of -0.20%. 10yr Bund closed this evening at -0.085% as equity markets turned lower into the close. The spread US/Germany closed this evening at +155.5bp. Italy closed 1.20% (-1bp), Greece 7.68% (-1bp), Turkey 8.95%, Portugal 3.07% (-3bp) and UK Gilt 10yr at 0.74%.