Brexit’s past and anticipated impact on the financial markets

Macroeconomic environment France : the business climate index was stable at 106 in July, while manufacturing confidence edged lower from 1 09 in June to 108 in July. The manufacturing, services and composite PMI reached 53.1, 55.3 and 54.5 , respectively, in July compared with 52.5, 55.9 and 55 , respectively, in June . Germany : manufacturing PMI surprised on the upside, improving from 55.9 in June to 57.3 in July. The services and composite PMI reached 54. 4 and 55.2, respectively, in July, compared with 54.5 and 54.8 , respectively i n June. Eurozone : composite PMI surprised on the downside, declining from 54.9 in June to 54.3 in July. The manufacturing and services PMI reached 55.1 and 54.4 , respectively, in July . US : the manufacturing and services PMI reached 55.5 and 56.2 , respectively, in July compared with 55.4 and 56.5 , respectively, in June . The Richmond Fed Manufacturing Index held at 20 in July, unchanged compared with June. Equities After three sessions in the red, strong rebound by equity mar kets in reaction to what were good earnings reports ( Alphabet, Boeing, UBS Group, Opel) and manufacturing PMI. The SXXP recorded its strongest one-day gain since 22 June, fuelled by the auto, basic resources and banking sectors. The Nasdaq set a new all-time high, while Chinese indices have staged their strongest 3-day rebound in 2 years after the government announced a series of measures, including infrastructure spending. The S&P 500 and the Nikkei fell slightly. Bond markets / Derivatives Rebound by sovereigns, save BTP, under pressure after a proposal to reform the Jobs Act passed by Matteo Renzi . The swap curve underwent a bull flattening , in line with the German curve, despite the ESM issue. As regards options, EUR volatility consolidated after Monday’s rise, in particular URC. The 1Y expiry outperformed, notably the 5Y to 10Y tenors, possibly thanks to the PMI. In the US, Treasury yields decreased slightly on Tuesday , the yield for the 10-year TNote went back to 2.9 4% . Money markets / Central banks The US 3-month Libor-OIS spread shed a further 1bp to 33.9bp, the 3-month TED spread also weakening by 1bp intraday to snap its rise in recent sessions. The SOFR fixed lower at 1.87%, setting an around 1-month low. Eurodollar contracts were on the rise on Tuesday, in contrast to Euribor and Short Sterling contracts that headed lower. FX The greenback showed signs of weakness throughout European trading hours. The euro took advantage of this, holding around 1.17, despite the mediocre Eurozone PMI published yesterday. The USD/JPY continued to consolidate in this environment, with the yen bolstered by the recent relative rebound in local interest rates. The Australian and New Zealand dollars were boosted by the Chinese yuan’s decline, with prospects of a pickup in activities dependent on China. Emerging currencies outperformed the US dollar and euro, in particular the Chilean peso and Brazil real that gained almost 1%. The Turkish lira shed 2.5% after the central bank kept key policy rates on hold. Commodities Crude oil prices edged higher on Tuesday, bolstered by the heightening tensions between the US and Iran.