Market Update – July 12 – A cautious start for equities
Market News Today – Wall Street ended the week in a positive mood & investors continue to buy equities at the start of this week. Hopes of ongoing central bank support are supporting the long end as virus developments see investors trim growth & inflation expectations. China’s central bank cut the reserve requirement ratio, as flagged in advance last week. The liquidity sensitive ChiNext saw the highest level since June 2015 & the offshore yuan nudged higher. Japanese markets outperformed; JPN225 gained 2.2%.
Japan core machine orders jumped 7.8% m/m in May, much more than anticipated & the third straight month of improvement, despite tightening virus restrictions. Virus developments continue to impact the annual rate, but the sharp acceleration in the monthly rate compared to the 0.6% m/m rise in April is encouraging.
The 10-year Bund is swinging between gains & losses, while peripheral bonds are moving higher & spreads narrow. Curves are flattening as the long end outperforms. Equities meanwhile are finding a footing & GER30 is fractionally higher after paring earlier losses. UK100 is still in the red but up from earlier lows, USA100 future is also marginally higher, indicating that investor appetite has already turned cautious again as markets keep a very close eye on virus developments as the Delta variant spreads through Europe. The latest surge started in the UK, which continues to see very high daily infection numbers & now also a pick up in hospitalisations. Germany’s numbers remain much, much lower, but have also started to creep higher amid concern that developments will derail plans to re-open much of Europe for the summer.
Overall, we don’t expect the recovery to be derailed & that should see yields creeping higher at some point, even if central banks remain very cautious for now.
Today – It will be a slow start to the week, with a lack of key releases and likely focus on virus developments. The earnings season also kicks off with JPMorgan, Goldman, Citigroup and Wells Fargo.
Biggest FX Mover @ (07:00 GMT) XAUUSD (-0.40%). Gold prices eased on Monday as a slightly stronger dollar and buoyant equities dimmed the safe-haven metal’s appeal.
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