Market Update – August 12

Market News Today – Stock market sentiment faltered amid widening virus restrictions in Australia and China’s regulatory clampdown. Australia and New Zealand yields outperformed, as did stocks, as Canberra went into lockdown. Japan PPI inflation came in much stronger than expected and hit the highest rate in 13 years. In Europe, bond markets moved higher with Treasuries yesterday in the wake of the inflation report and a strong auction, and bonds remained supported overnight, as Asian stocks struggled. Treasury futures are also off earlier highs, but still slightly higher, while in cash markets the US 10-year rate has corrected -0.3 bp to 1.35%.

The UK economy bounced back in the second quarter as restrictions were lifted. Activity expanded 4.8% q/q, which was in line with expectations and a strong come back from the -1.6% q/q contraction in Q1. Most worryingly perhaps, gross fixed capital formation contracted for a second quarter, albeit to a lesser extent than in the first quarter, but still with a negative impact on the quarterly growth rate, although business investment improved. Not a balanced picture, although of course developments in virus measures are the main culprit. The monthly GDP number for June meanwhile was a positive surprise, with an acceleration in growth to 1.0% m/m from 0.6% m/m in May.

In FX markets EUR and GBP are little changed against the Dollar at 1.1743 and 1.3872. GER30 and UK100 futures meanwhile are up 0.9% and 0.1% respectively, while US futures are fractionally lower. The aerospace supplier Meggitt sky-rocketed on a new $9.7 billion takeover offer, while the UK100 ended at an 18-month peak on gains. USDJPY is little changed at 110.40. USOIL meanwhile is trading at $69.26 per barrel.

Today – US PPI & Jobless Claims, Fedspeak remains in focus amid tapering speculation & virus development concerns in Asia Pacific.

Big Mover – Yesterday aerospace supplier Meggitt skyrocketed on a new $9.7 bn takeover offer, boosting the UK100 to end at an 18-month peak on gains. Today UK100 gapped down to 7185 from 7349 on profit taking. Faster MAs already flattened implying the gap down was limited. H1 ATR 14.0, Daily ATR 59.6.

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Andria Pichidi

Market Analyst

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