Market Talk- July 20th, 2017

A strong Asian session following yet another record US performance with the added enthusiasm for central guidance from both the BOJ and the ECB. The BOJ left rates unchanged but we did hear them cut the inflation forecast for this and next years. Earlier we also saw the June Trade data release which proved to be better than expected with both Exports and Imports outperforming forecasts by 0.2% and 0.9% respectively. The Nikkei closed the day up +0.6% with TOPIX making highs, whilst the JPY reversed earlier strength and now plays at the weakest levels on the day around 112.35. The Shanghai saw a strong market reversing all the move seen earlier in the week and is on course to close back towards the 2015 levels. The Hang Seng also moved better all be that a small gain (+0.2%) as they awaited the ECB announcement later in the trading day. ASX moved higher on stronger commodity prices with the AUD drifting back from the psychological 80 level. SENSEX closed small lower (-0.16%) as rumours of profit-taking circulate.

European stocks were better bid from the open but could not retain the strength as we approached the ECB announcement. The afternoon trade was hit as they reflected the stronger Euro even though we saw very little movement upon the decision but anticipate tightening talks to begin in September. Is was not until the Q+A session did the currency start to improve after Draghi was asked about the path for QE wind-down. This is the opposite to what we are seeing in the US markets as the USD trades softer and stocks hit record after record, a trend that looks as though has only just begun. The unchanged policy call was expected with the clarification of Eur60bn per month continuing; resulting in more tightening for peripheral spreads as the carry continues. Interesting though that the spread US/Germany looks to have peaked as it moves back to the tightest levels in a while. Core indices closed lower (DAX, CAC and IBEX) but saw the FTSE rally +0.7% as GBP declined -0.4%.

US continue to push ahead with the S+P having made over twenty-five new highs so far this year! Earnings have been relatively upbeat and the Morgan Stanley numbers are helping a broad-based rally for Financials. Consumer shares – especially tech related – are helping as are energy and industrials. Mentioned a few times over the past trading days has been the outperformance of the S+P over the large cap DOW. This has indications that retail is finally moving off the bench and returning to the game. Toward the close this broader trend looks to have returned to mainstream and so we see all three indices marginally in positive with NASDAQ setting yet another record close.

2’s closed 1.35% (-1bp), 10’s 2.26% (-1bp) 30’s 2.82% (-2bp), Bunds 0.53% (-1bp) closing spread unchanged at +173bp. France 0.77% (-3bp), Italy 2.10% (-8bp), Greece 5.18% (+3bp), Turkey 10.21% (-2bp), Portugal 2.96% (-6bp) and Gilts 1.20% (+1bp).