13 July 2016 at 11:06 GMT
Generally speaking, today's markets reflect a broadly based calming in the face of two recent "fear factors" – namely the Brexit vote and the Italian banks crisis.
With the GBP up versus the USD and shares of Banco Monte dei Paschi up 10%, it would appear that investors are retreating from the precipice even as neither Britain's European Union departure nor the difficulties facing Italy's banks have been conclusively resolved.
The risk-on rally, it would seem is once again institution-dependent as markets await stimulus from central banks and governments. One possible downside signal is Airbus, whose shares have declined as demand struggles. Did the French conglomerate go too far with its "superjumbo" A380, or do its woes reflect a world in which fewer people and firms are making grand-scaled purchases?
- US MBA mortgage applications (1100 GMT)
- US June Import Price Index (1230 GMT)
- CA Bank of Canada interest rate decision (1400 GMT)
The FX majors are in consolidation mode this morning with little or no catalysts to move the market from its overnight ranges so far.
FX Options volatilities
Vols are trading sideways in EURUSD so far this morning. In GBP, we have seen a smaller bounce back up, with one-month up to 14.25 from 13.5 in Asia.
The BoE is out tomorrow and we should expect some decent volatility on the event with the market biased for a 25 basis point rate cut. Overnight GBPUSD sits at 36 vols.
USDJPY vols are trading a bit softer, with one-month down 0.5 on a calming spot.
The 10-year German bund yield is approaching positive territory again; Italian BTP yield at year-low and looking stretched.
Another strong day for credit as XOVER breaks below pre-Brexit levels. Emerging Market credit spreads significantly tighter, financials still wider.
European stocks edged higher Wednesday, moving toward a fifth consecutive session of advances. Indices were up by 0.1-0.2% bolstered by expectations for further monetary stimulus from global central banks, including a possible interest rate cut by the Bank of England on Thursday.
Basic materials, technology, industrials, and consumer services groups moved up. But consumer goods, oil and gas and financial shares were in the red.
Among the top performers on Wednesday, Accor SA climbed 4.4% as the French hotel operator said late Tuesday it plans to makes its Hotelnvest in a subsidiary then sell a majority stake in the unit.
Burberry picked up 4.7% as the apparel and accessories company said it expects a higher benefit from exchange rates for fiscal 2017. That view comes as Burberry makes 90% of its sales outside the UK, and the British pound has slid in value after the UK’s Brexit vote last month that sets the country on course to leave the European Union.
Meanwhile, Italy’s Banca Monte dei Paschi di Siena SpA jumped 10%, adding to Tuesday’s gain of nearly 4% after Italy’s Finance Minister Pier Carlo Padoan and German chancellor Angela Merkel reportedly expressed confidence that a larger crisis within the Italian banking sector can be avoided.
But decliners included Airbus Group SE shares. Shares were down 1% after the aircraft maker said it’s had to cut A380 production more than expected because of weak demand. Airbus CEO Fabrice Bregier said at the Farnborough air show that the market for A380-sized planes “is very thin” and that finding new buyers is taking longer than anticipated.
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Is Airbus' A380 just too big, or is it fighting for space
in a world of contracting expectations? Photo: iStock
— Edited by Michael McKenna