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Market Talk — July 25, 2016

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Even though we have two central banks announcing rate decision this week, in addition to Tuesday being one of the busiest corporate reporting days of the year and hearing from the G20 at the weekend, this week looks to be one of the quietest! Asia had no reaction to anything emerging from the G20 as the most discussed topic happened to be Nintendo shares declining 18%, often the case when buying the hype, selling the release. Over the year, however, the shares are still well into positive territory. Probably not surprising we are seeing a quiet session ahead of the two-day BOJ meeting commencing July 28th.

With Asia not providing much direction given all the potential news avenues over the past weekend, Europe is forced to focus, again, on Italian Bank Stress Tests end of the week. Nerves are obviously around after Banca Monte dei Paschi di Seina (BMPS) shares traded around 8% lower as fears of yet more capital requirements hit the streets. This stock remains close to recent lows with the 1yr return around -84%. German IFO better on all scores but failed to inspire the market either. The G20 did not really have a direct impact on markets this morning but the enthuses remains on BREXIT and the implications for global growth going forward. Core European Indices closed mixed around +/- 0.3% on the day — still plenty to play for in the days ahead of month end and may well be worth keeping an eye on oil.

US closed off the days lows but still negative on the day but did inspire a bounce in the VIX (last seen near 13). We saw gold bounce from the $1312 level and also hear of a report (I believe from BOA) claiming that cash levels are the highest since 2001. Lots of earnings out this week (probably the busiest of the year) and so many are happy for a holiday week in July.

US Treasuries saw more steepening today but admittedly it was only 2bp. 2’s remained heavy today trading down too 0.73%, whilst 10’s closed just 0.5% higher (yield) at 1.57%. This closes the 2/10 curve at 84bp. In Germany, the 10yr Bund closed -0.05%, whilst 2’s closed -0.62%. 10yr Italy closed 1.23% (u/c), Greece 7.91% (+9bp), Turkey 9.64% (-16bp), Portugal 3% (-2bp), and Gilts close 0.80% (+1bp).