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Market Talk — July 28, 2016

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As we enter the BOJ meeting, messages are very mixed. Many are hoping the package exceeds expectation JPY 28tln ($266bn) whilst others, anxious the BOJ may shoot too soon, possibly more easing at a time when they feel it will not work; so Asia could be interesting tomorrow. Today the Nikkei lost some of yesterday’s gains ahead of this evening meet. Shanghai and Hang Seng were little changed today but the rumours continue that China Banking Regulatory Commission is considering restrictions on “risky” wealth management products – details a little sketchy so far!

After a rather uneventful Asian session, Europe had little to trade off of and went on the latest banking results. Despite better than expected forecast results both Credit Suisse and BNP shares finished lower on the day. UK banks shares saw a similar story. Although numbers were not that bad, the outlook remains concerning with job losses a reason Q2 numbers were better than expected. Not much could turn sentiment in today’s trading even with better than expected German employment and inflation releases. It’s just one of those markets where all news is seen as negative and there is not much one can do other than accept that rallies will be sold! Late tomorrow (after US markets close) we will hear of the results of the European bank stress tests. In 2014, they tested 124 banks but this time it will be only 51. Interestingly though, Italian banks will be eagerly watched (keep an eye on tier 1 ratio’s). Anyhow, we will have the weekend to think it all over before markets reopen on Monday.

We opened weaker in the States and spent the rest of the day recovering back to unchanged. Much data out tomorrow at the end of the month, so watch for month-end numbers. It is doubtful we will move too much on economic news tomorrow (ahead of European bank stress test results) unless the data is way out of whack. Expectations are already buoyant both for GDP, the Chicago PMI, and the Michigan Sentiment Index so would have to be way out of line.

A quiet day also for bonds with 2/10 small steepening (1bp) closing +80bp. US 10’s closed 1.50% with German bunds closing -0.09% that puts the spread at +159bp. Italy 10’s closed 1.19% (-1bp), Greece 7.90% (u/c), Turkey 9.48% (-15bp), Portugal 2.93% (-3bp) and UK Gilts 0.71% (-2bp).