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Market Talk — July 18, 2016

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Despite weekend press of Turkey, BREXIT and a small early CPI miss for New Zealand (0.4% against an expected 0.5%) and with Japan on a national holiday, all of this resulted in a rather lacklustre start to the week. Shanghai saw a fairly tight trading range (<1%), closing off the days lows but still down 0.4%. Hang Seng managed a better than expected performance as mood improved after confidence settled compared to late Fridays US trading.

A similar session in Europe to what we saw in Asia. With the lack of any major economic data and a reasonably quiet Sunday Press, markets meandered into the week with a mixed performance. One piece of news that many dealers were discussing was Softbank’s purchase of ARM Holdings. Paying a huge premium for the semiconductor giant was talked helped GBP a fraction but did surprise the market that the bid came from Softbank! One may have expected it from Apple but an interesting acquisition for sure. All core indices closed little changed with DAX, CACA and IBEX all small lower whilst the 40+% rally in ARM helped the FTSE secure a positive close.

Record highs were seen (again) in what must still be the most unloved rally in recent memory! Many market analysts continue to feed the news that with bond yields so low retail buys dividends but the flow of money into the USD continues as we see a combination of USD assets perform. All core US indices closed positive with the S+P almost hitting all-time high (as it did last Wednesday) but did close at an all time high. The DOW did create a new high and held it into the close – much is still expected despite the street trying to ignore it!

US Bond market steepened a little (+1bp) today with 2/10 closing at +90bp. US 10’s closed 1.58% which is 3bp higher than Fridays close. In Europe we did an early attempt at positive yield but this had been rejected by late European trading. Eventually closing at -0.02% the US/Bund spread closes at +160bp. Italy was unchanged at 1.25%, Greece 7.68% (+4bp), Turkey lost much foreign appetite loosing 59bp to close 9.47%. Portugal closed 3.10% (u/c), and UK Gilt 10yr closed 0.82% (-1bp).