Equities vs Bonds, who to believe

30 June, 2016

Global post-Brexit relief rally continued to push Asian stocks higher on Thursday, after U.S. stocks ended yesterday’s session sharply to the upside, recovering more than half of its losses triggered by the Brexit vote, and the FTSE 100 erasing all losses made in the two-days selloff.

The two-days rally in equity markets suggest that some investors are becoming less worried on the economic impact a Brexit might cause in the foreseeable future as central banks and policy makers stand ready to intervene whenever needed. However, fixed income markets disagree and flight to safety pushed many sovereign debt yields to new historic lows. According to Fitch, the amount of negative-yielding global debt jumped to $11.7 trillion, a 12.5% higher than end of last month. The mixed signals provided by different market participants suggests one certain thing “more volatility ahead”.

Oil prices gave up some of Wednesdays gains with Brent trading below $50 per barrel as fears over Norway’s strike abated, where a pay dispute involving more than 700 workers at seven producing fields was expected to impact more than a fifth of the country’s output. Oil was the best performing asset in first half 2016, gaining more than 34% assuming it closes today around $50. No doubt the numerous production outages played a major role in the rally, but the range bound movement since mid-May provided some good vibes in financial markets after being the major source of uncertainty in 2015 and first couple of weeks in 2016.   

In currency markets, sterling bears were trying to take back control before European markets opens. GBPUSD managed to recover 400 pips from Monday’s low after dropping by more than 11% in the two-days post Brexit vote. Equity traders shouldn’t ignore sterling moves as it’s likely to play a major role in identifying risk on/off days. On the data front UK’s final Q1 GDP is due to release and expected to come in line with previous reading of 0.4% growth, but taking into consideration that this is a lagging indicator and investors are more interested in knowing whether UK will fall into recession later in 2016 or 2017, the released data will have little impact on the currency direction.  


Source  
UK elections, trade talks, CB meetings

Traders and investors are bracing for a volatile week ahead as several events may determine the direction of markets for the foreseeable future...

Markets keep dancing on trade headlines

After a steep fall in global equity markets over the first two trading days of December, sentiment turned around once more and risk-on trade...

Global markets shaken by fresh trade concerns

It is another day, but the same old story with trade developments as conflicting signals on the progress of negotiations foster confusion and uncertainty...


Markets in wait-and-see mode

Another week, another record high for US stock markets despite renewed uncertainty and mixed messages from the US-China trade front...

Upbeat US data send stocks to new records

US major indices and Treasury yields rallied overnight as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all hit new record...

Asian currencies see contrasting performances

The Dollar index (DXY) has gained 0.7 percent so far this week, briefly breaching the 98.0 psychological mark before easing from...


Risk sentiment edges higher

Risk-on sentiment is coursing through Asian markets, amid news reports that the US is considering lifting some of the tariffs currently imposed on...

US stocks hit new record high

After cutting interest rates for a third time yesterday, the Federal Reserve Chair Powell said he believes monetary policy is in a good place...

Asian stocks, currencies mixed

Asian stocks and currencies are mixed, as the post-trade truce bounce is losing steam. Investors are now weighing up their next steps after news...