All eyes were on the BOJ, and even though they disappointed many, after a turbulent trading session the Nikkei index closed higher. No easing, no additions to the money base, no further purchases of JGB’s, commercial paper or REIT’s but they did almost double the ETF purchase programme from JPY 3.3tln to 6tln. Stocks did not know what to do and after a brief dip it rallied to close 0.5% higher on the day (worth keeping an eye on bank shares as they will prefer this BOJ action). The JPY was the star performer trading higher immediately on the announcement and closes in late US trading 3% better on the day flirting with the 102 handle. After a brief rally in the Shanghai and HSI uncertainty weighed heavily on Asian markets and slowly we drifted lower into the weekend.
Better than expected numbers for Barclays set the trend for bank shares today as the market waited for the stress tests released after the US markets closed this evening. Concentrating on Tier 1 Capital will be the name of the game but then we have all weekend to decide Mondays trade. All core European indices closed better following better than forecast GDP data but still well down on the Q1 reading. From the EBA release this evening BMPS is worse than thought with negative (-2.2%) Tier 1 Capital just reported, Unicredit also poor (7.1%). These reports are not binding and are there to be a guide with no forced direction. They are also taken on a single (bank) event but what should be considered is how banks would fair if it were not a single event that more than one bank or even sovereign were forced into action (wonder why no banks from Portugal or Greece were included in the list of 51)? Interesting that on the news the DOW futures broke into positive ground with the USD also gaining on the EURO and GBP – next week could be interesting.
US growth disappointed markets today especially when so much was expected. With a 1.2% release after last quarters 2.6% certainly hit confidence in the DOW but general market seemed to be happy collecting the S+P together with the NASDAQ. As we close the month of July the S+P has hit contract highs as we are to expect slower growth, watch bonds find renewed support together with a strong week for gold.
US Bonds were the main benefactors of todays economic releases with a parallel shift across the curve. 2/10 closed at +80bp with 10’s closing 1.45%. Bunds rallied also closing -0.12% which closes the US/Bund spread at +157bp. Italy 10yr closed 1.16% (-3bp), Greece 10yr at 7.98% (+8bp), Turkey 9.45% (-3bp), Portugal 2.90% (-3bp), UK Gilt 10yr closed 0.68% (-3bp) with many talking a rate reduction by the BOE the next move.
