Market Talk — July 22, 2016

We saw a bit of a wobble today in Asian cash markets after BOJ governor Kuroda dismissed the idea of helicopter money and following a weak US session resulting in 1% declines for the Nikkei, Shanghai, and a small loss (-0.2%) in the Hang Seng. Oil didn’t help sentiment having lost 2% yesterday and no sign of recovery today as we head into the weekend.

In what is normally low sensitivity data this morning we had the PMI (Purchasing Managers Index) in Europe and the UK. Europe was almost as expected (small miss) but the UK PMI for Services was a wake-up call! Services are estimated around 75% of the UK economy came in at 47.4 whilst the expected was 49.2 and previous month was 52.3; this points to contraction. Immediately, this hit GBP but also the Euro and as a balance what were negative equity markets bounced as the currencies fell. In afternoon trading the mood continued and the lower currencies drifted the bid appeared for equities. By the close it was only the DAX that finished lower with FTSE, CAC and IBEX all in positive territory.

US dollar found renewed strength (probably by default) and that tended to resonate throughout the day and by the close all core indices were higher with little sign of fading into the close. Closes of around 0.5% were produced across the field. We did see a little weakness in the price of gold (around $10) but closed between the recent ($1315/$1335) trading range.

Bonds on both sides of the pond were weaker early in the trading day but both reversed trend to close marginally higher (price, lower yield) on the day. Bunds played in and out of positive yield until a late buying spree pushed 10’s back into negative territory. US curve flattened 1bp 2/10 to close +87bp, that put 10’s at 1.57%. Germany wander back below zero closing at -0.015% , which closed the US/Germany spread at +158.5bp. Italy closed -1bp at 1.23%, Greece gained 1bp to close 7.82%, Turkey 9.80% (-20bp), Portugal 3.02% (u/c) and UK Gilts closed 0.795% (4bp).