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Market Talk — July 26, 2016

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When is a stimulus not a stimulus? Talk in Japan that the eagerly awaited stimulus may not be enough (combined with some nervous profit-taking) produced a 1.4% decline in the Nikkei today. At the same time, the JPY saw the flight to quality and rallied over 1%; last seen trading mid 104. The contrast to Japan saw Shanghai and Hang Seng closing over 1% higher the pair.

Although Europe was quiet all core markets (with the exception of IBEX) closed higher on the day even though oil traded heavy. Markets feel as though summer has really has arrived in thin lethargic trading. Bank shares remain a nervous sector and today we saw Commerzbank decline 4.5% after a drop in its capital margin and a drop in Q2 operating profits.

Tuesday we see the FOMC kick-off their two-day meeting and although many people talk the FED should be raising it is not being priced into the market just yet. What many question, however, is that they may “talk” a September rate increase and it being summer trading conditions, could have a larger influence on the markets because of summer liquidity. The DOW closed marginally weaker with S+P and NASDAQ marginally better, so still all to play for.

A quiet day in Treasuries but more flattening with 2’s closing unchanged at 0.75% and 10’s 1bp flatter at 1.56% closing the 2/10 spread at +81bp. 10’s in Germany closed -0.03% which closes the US/Bund spread at +159bp. Italy closed 1.24% (+1bp), Greece 7.88% (-3bp), Turkey 9.77% (+13bp), Portugal 3.01% (+1bp) and UK Gilt 10yr at 0.82% (+1bp).