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Market Talk — July 27, 2016

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More talk that the expected that the Japanese stimulus package could exceed the JPY 20tln and could even be as large as 28tln boosted the Nikkei and sent the Yen back to 104.50 level. Rumours have been circulating for a while and even yesterday stories were that the package would only be a fraction worried the market yesterday resulting in the 1.4% loss. However, all forgiven today and we closed just under a 2% gain for the day. Very much in the vein of “float the rumour” there is also talk of a 50yr Bond, whilst the idea of helicopter money is still on the table. The BOJ begin their two day meeting on Thursday so could be interesting. The Shanghai just cannot break away from this 3k level even though it is more psychological than anything else. Today we closed below it again closing down 2% at 2991.12.

A couple of pieces of news around for Europe today saw UK growth beat expectations (+0.6% against expected +0.4%) but on the flip side we heard that Deutsche Bank and Santander had returned poor numbers. Deutsche reported a near 100% drop in Q2 Net-Income and Santander reported a near 50% drop. Shares had a mixed response though with DB -3.5% and Santander +2%. FTSE did not rally as much as other core but did see a +0.4% gain. Meanwhile DAX, CAC and IBEX all rallied around 1% as all markets waited for the FED’s decision.

As expected the FED left rates unchanged in what can only be described as a summer market. With most indices closing around unchanged it was only the NASDAQ that managed a +0.5% meaningful gain. Late in the day we saw Apple beat expectations and finally saw a major move – its stock gained 7% in after-hours trading. Given the FED’s cagey response many dealers are wondering if a September hike really is the next move! All this uncertainty had little effect on the Bond market but we did see a $20 (+1.5%) rally in the price of gold in late trading.

With the unclear message arising from the FED meeting, the bond market saw its chance to rally. More flattening saw 2’s down just 3bp to close 0.71% whilst the 10yr lost 6bp to close 1.50% (2/10 closes +79bp). Germany also took 10’s more negative closing -5bp at -0.08% closing the US/Germany spread at +158bp. Italy closed 1.21% (-3bp), Greece +1bp at 7.90%, Turkey 9.63% (-14bp), Portugal 2.96% (-4bp) and UK Gilts -8.5bp at 0.73% where talk of possible negative interest rates are starting to spook the market.