Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 27 July 2016 at 11:06 GMT

Mid-session Europe: Bunds defying risk-on wave

Saxo Markets


Foreign exchange

Today's trade occurs in the shadow of two key upcoming central bank outings, the Federal Open Markey Committee today and the Bank of Japan Friday. New reports on the massive stimulus ostensibly planned for the latter saw the yen weaken sharply versus the USD overnight.

In US earnings, the results so far show revenues holding steady and EPS declining with Altria, Boeing, Dr. Pepper Snapple, General Dynamics, Goodyear, Ingersoll-Rand, Coca-Cola, and Nasdaq OMX slated to report thisd afternoon.

In shares, automakers are up on a big settlement for Volkswagen while UK housebuilder Taylor Wimpey soared 6% on a strong H1 pre-tax profit.

In commodities, oil continues to slump while gold, like many investors, appears content to wait for the next round of central bank statements.


  • US MBA Mortgage Applications (1100 GMT) 
  • US June Prelim. Durable Goods Orders (1230 GMT) 
  • US FOMC Interest Rate Decision (1600 GMT)  

FX Options volatilities

Volatility has been sold heavily in majors over the last two trading days as the market is long gamma into these events and it seems like there is decent supply every day for gamma.
Three-month volatility has fallen 0.5 % over the last two trading days and is now trading at 8.2 which is the lowest level since start 2015.

If we can’t break out of range after this week it seems we will test lower levels over the next month towards 7.0 %.

For GBP and JPY, the direction still looks to be for lower volatilities but it's a different story as they are still trading at historic relative high levels. JPY volatility in particular will drop dramatically if the yen also goes into summer trading after the BoJ this week. 

EURJPY will drop heavily; at the moment it is very hard to find decent spreads/bids in this cross as liquidity is just bad and no one want to be caught long into the summer market.

On the other hand we think most market participants are looking to go long later this summer at lower levels, so as late as possible in August.

Fixed income

German bunds have climbed back higher despite the improved risk sentiment across European markets, following rather strong auctions. 

Corporate bonds are enjoying some tailwind again after a soft session yesterday, although the upside for high-yield bonds seems capped around 300 basis points on the index level for now. 

While the markets await the FOMC message tonight and possibly a new policy update from Bank of Japan on Friday, we think the banking stress test results released by the ECB on Friday could be a potential market mover as well. 

We address this and the problems in the Italian banking sector in our Weekly Bond Update, which has just been published to




European equity indices trade higher this morning ahead of today’s FOMC policy decision and better-than-expected GDP figures for Q2 in the UK post-Brexit.

Taylor Wimpey climbed 6% this morning to a post-Brexit high as the UK housebuilder revealed that H1 pre-tax profit rose 12%.

Luxury goods maker LVMH trades 7% higher today having beaten analyst estimates for Q2 sales. These figures helped lift peers Christian Dior by 4% and Kering by 2%.

The auto sector also lends support to the indices this morning as Volkswagen climbs 3% after a $14.7bn settlement over its US emissions scandal. Peugeot was the biggest gainer in the CAC40 as shares in the French carmaker rallied 8% on a 32% jump in H1 earnings.

ITV rose 8.5%, the most in two years, as the UK broadcaster posted an 11% increase in H1 sales. The figures were attributed to the recent Euro 2016 football tournament, cost cutting and growth in its studio production business.

Deutsche Bank was among the top decliners today as shares fell 4% due to a sharp fall in 2Q revenue.

Scheduled US earnings released today include Altria, Boeing, Dr. Pepper Snapple, General Dynamics, Goodyear, Ingersoll-Rand, Coca-Cola, and Nasdaq OMX.

The replay of our Morning Call can be found here.

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

Read more

Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.

Deutsche Bank
Deutsche Bank shares dropped by 4% today on soft Q2 revenues 
and a generally poor outlook. Photo: iStock

— Edited by Michael McKenna

The Global Sales Trading desk is a multi-asset team providing customised trading solutions


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