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Financial market review – 22 July 2016

Monday 18 July 

  • In the US there was a 1pt fall in the NAHB housing market index to 59 (vs. 60 expected).
  • The UK’s Monetary Policy Committee’s Martin Weale said with regards to the uncertainty stemming from Brexit, that ‘this uncertainty points to the argument that we should wait for firmer evidence before making any policy change and least in the absence of any strong arguments for an immediate change’.
  • ECB released its holdings from its CSPP program for the first time and there was confirmation that they have purchased split IG rated which shows that they are happy to buy what are effectively High Yield names in index terms. In terms of run rate, their holdings as of 15 July 2016 were €10.4bn. This implies net purchases settled last week of €2bn with an average daily run rate of €391m.

Tuesday 19 July

  • IMF downgraded its global growth forecast for 2016 and 2017 by 0.1% to 3.1% and 3.4% respectively from the April forecasts. The Fund highlighted that the new forecast assumes that UK and EU officials negotiate a deal that does not lead to a large increase in economic barriers. The Fund has pencilled in growth in the UK this year at 1.7% (from 1.9% in the previous forecast) and growth of just 1.3% in 2017, having previously pencilled in 2.2%.
  • ECB Bank Lending Survey demonstrated a continued easing of lending conditions in Q2 2016, along with further loosening expected in Q3.
  • There was a decline in the German ZEW survey for July with the current situation component falling 4.7pts and more than expected to 49.8 (vs. 51.8 expected). It is worth noting that the survey period was post-Brexit.
  • The UK inflation report for June was largely in line to a little bit firmer than expected. CPI printed at +0.2% MoM as expected, with the YoY rate creeping up two-tenths to +0.5% as a result. The core also rose two tenths to +1.4% YoY.
  • US housing rose more than expected in June (+4.8% MoM vs. +0.5% expected).

Wednesday 20 July

  • European Commission’s flash consumer confidence report for July weakened 0.7pts to -7.9 more or less in line with expectations.
  • The UK ILO unemployment rate was reported as nudging down slightly to 4.9% (expectations had been for no change). The last time unemployment was this low was in 2005. Average weekly earnings including bonuses rose +2.3% YoY in the three months to May (from +2.0%).
  • One of the Bank of England’s policy makers, Kristin Forbes, commented in a newspaper article that ‘given the substantial uncertainty and likelihood that growth slows, there is a valid case to ease monetary policy to support demand’.

Thursday 21 July

  • The European Central Bank decided to keep its interest rate unchanged following its July policy meeting, there will also be no change to the quantitative easing programme.
  • The Bank of Japan governor ruled out the idea of using helicopter money to combat deflation.
  • In the US initial jobless claims continued to stay at low levels with the 253k print for last week down 1k from the week prior. The Philly Fed manufacturing survey was disappointing at the headline after printing at -2.9 (vs. +4.5 expected). Existing home sales rose unexpectedly in June (+1.1% MoM vs. -0.9% expected). Conference Board’s leading index rose +0.3% MoM (vs. +0.2% expected) in June.
  • In Europe the business confidence rose marginally in France this month (+2pts to 102). UK retail sales were a little bit softer than expected last month. The statistics office reported that the survey period for the data was between May 29th and July 2nd so some post-Brexit impact will have been captured.

Friday 22 July

  • In Europe, the Manufacturing PMI for July came in marginally missing expectation at 51.9 (forecast at 52.0). For individual countries, both manufacturing PMI in France and Germany have beaten expectations.
  • Economic activity in the UK has had its sharpest fall since 2009 in the aftermath of the vote to leave the EU, Markit/CIPS purchasing managers’ survey fell to 47.7 in July from 52.4 in June. UK’s manufacturing PMI however exceeds forecast at 49.1 compared to 47.8 expected.
  • Japan’s Manufacturing PMI also showed surpass expectation at 49 (vs 48.3 expected).
IndexActual priceWeek to dateMonth to dateYear to date
S&P 5002165.
Eurostoxx 600339.10.32.8-7.3
MSCI Emerging Markets871.
FTSE 1006707.530.573.137.45
Treasury yield 10 years1.570.020.10-0.70
Bund yield 10 years-0.01-0.020.12-0.64
Gilt yield 10 years0.82-0.02-0.05-1.14
USD vs Sterling1.312-0.55-1.44-10.97
Sterling vs Euro0.840-0.42-0.69-12.27
USD vs Emerging Markets FX68.383-0.60-0.254.18
Commodity Index183.7-2.7-4.64.3
Brent Oil46.2-3.0-7.023.9

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