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Market Talk — June 13, 2016

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Todays Asian equity weakness was both a spill-over from the weak Friday sessions but also strength in the JPY. From the opening bell we saw the Nikkei off over 1.5% and it literally could not recover. Among the areas that suffered most were exporters with losses around 4% for Nissan, Toyota and Sony. With BOJ meeting this week there is much concern rather than optimism surrounding the market. Dealers are hoping additional stimulus from the central bank will provide support but having seen a small Sales data miss today, we will need something quite different to provide the kind of confidence both Japan and the rest of Asia are looking for. The JPY was again a flight to quality when we briefly saw a 104 handle.

Weekend press was full of the BREXIT pensions reports, polls and opinions accusing the UK of voting to turn its back on the union. The late news on Friday, that the “leave” campaign were 55/45 in the polls, was the reason GBP lost 1.5% then and was heavy again this morning. The Euro held its price and let GBP go but the move into the USD that we have seen for the past two years certainly feels as though it has returned. It was noticeable that core European equities suffered as money runs from uncertainty. The DAX, CAC and IBEX were all off around 2% whilst FTSE side-stepped most with a decline of just 1%, given the GBP fall. No meaningful data today either in Europe or the US but we do have enough later in the week to look forward too.

US markets followed the pack opening lower but saw a rally in the DOW back into positive territory at one stage. However, given the global uncertainty for this week that was too much to ask for and we spent the rest of the day drifting lower. It really was not a good close as all US indices closed on the lows for the day. DOW, S+P and NASDAQ were all around 0.8% lower on the day. Still all to play for this week with central banks (BOJ, SNB and FED) all ahead of next week’s BREXIT vote and data as well (US Retail Sales tomorrow).

US Bonds are still witnessing the flight to quality (for the core) and a flatter curve. 2/10 closed this evening at +90bp, as 10’s were last seen at 1.61%. German 10yr Bund have yet to trade at 0% but traded mighty close today but close 0.02%; which closes the US/Bund spread at +159bp. The weaker stock markets saw peripherals falter in the dash for quality. Italy 10yr closed 1.45% (+7bp), Greece 7.65% (+32bp), Turkey 9.54% (+9bp), Portugal 3.19% (+12bp) and UK 10yr Gilts at 1.21% (-2bp). Peripherals are concerned that IF the BREXIT vote is successful it will start a domino effect with many looking to leave. The Senior Financials Index (CDS on 30 banks) lost 6% today, the most it has moved in months.