Most markets were in a holding pattern awaiting the outcome of central bank decisions. The Nikkei faltered initially but was short-lived as by the end of the day we closed almost unchanged. The BOJ decision expected within the next 24 hours could direct trading for the next few months. Most are looking for additional stimulus with mid-term JGB purchases and the likely outcome for a stronger JPY. This evening we are seeing the Yen trade around the 101.75 level whilst Nikkei futures hover close to unchanged cash close.
Europe is also in limbo as we await the central bank decisions and therefore plot future course. Most core markets closed with small positives but volumes were low with many running small books ahead of the possible increase in volatility. We do continue to see the USD (DXY) edge firmer as money moves away from areas of uncertainty. The GBP remains heavy post the BREXIT vote despite the economic data contradicting the uneasiness.
US indices opened strong but drifted back when oil turned. Again, many nervous dealers are happy running thin books ahead of both decisions but once out, most will be focusing on bank stocks. The markets expect little change by the BOJ but the question remains, will the FED continue to play the happy mediator role or will they finally break this pretence. The US Treasury market today saw bull flattening with 2’s a smidgen lower at 0.775% whilst 10’s gained 2bp closing at 1.69%; 2/10 closed +91.5bp. We also saw a similar move in Germany with 2’s -1bp at -0.675% and 10’s 3bp better and back in negative territory at -0.015%; US/Bund spread closed +170.5bp. Italy 10’s closed 1.25% (-6bp), Greece 8.35% (-12bp), Turkey 9.58%, Portugal 3.28% (-5bp) and UK Gilts at 0.80%.