Markets In Review: Stock Markets Recover as Yields Set Record Lows

■ Sovereign bond yields slide lower on expectations for more monetary easing

■ Stock markets recovery globally amid accommodative monetary scenery

■ FTSE 100 gains more than 7% during week, close to pre-Brexit vote levels

■ FTSE’s gain still doesn’t compensate for GBP’s decline

■ S&P 500 adds 3.2%, at strongest weekly performance since November

Yields of sovereign bonds continued to push to new lows this week. Expectations for a response to the Brexit vote by the ECB translated to Europe being a predominant example for this, with the French 10 year government bond’s yield dropping from around 0.36% at the start of the week, to less than 0.16% on Friday. The Italian 10 year, similarly, saw its yield drop from 1.58% at the start of the week to 1.23% by the end of it – For a country with a debt to GDP of around 130%, which is not Japan, that’s impressive. More benchmark sovereign yields such as those of the U.S. and Germany entrenched in their current low levels, signaling what’s likely to evolve to another skirmish or so of the currency war. Due stagnant sailing for monetary policy also translated to a substantial unwinding of the Brexit vote’s aftermath. The Euro gained close to 0.2% vs. the U.S. Dollar, recovering some of the 2.3% that it lost on the previous Friday, due to the Brexit.

Equities, however, were the real gainer this week with a sizeable 2.3% weekly gain recorded at the DAX, owing to a 3.5% Wed-Fri rally. In the U.K., the FTSE 100 increased no less than 7.15% during the week. This lead the index to about 5% higher than it were before the Brexit vote, though considering the 10% or so depreciation of the GBP vs. the USD at that time, it’s hard to call the nominal gain a great achievement. U.S. stock markets, alternatively, proved a great Brexit investment. In addition to the strengthening of the USD last week, the S&P added a cool 3.2% this week, its strongest performance since November, securing the index back to its pre-Brexit vote levels.

Commodities, unsurprisingly, are also on the gain. Oil added no less than 3.5% this week, hitting USD 49.28 a barrel. Adjusting this to the USD’s strengthening, by converting to Euros, for example, sees the dial point to pre-Brexit vote levels. The performance of Silver, similarly, has been quite remarkable, adding no less than 11.35%, to USD 19.76, the largest weekly increase for the metal since August of 2013.

Central bankers seek coordination

Fueling the flight-to-assets this week, were a plethora of dovish indications. These included BoE Governor Carney, who said on Thursday that he can “assure” that “in the coming months the Bank can be expected to take whatever action is needed to support growth….” Carney further went into specifics as the noted that in his own view “some monetary policy easing will likely be required over the summer.” Thursday also saw an article on Bloomberg suggesting that the ECB “is considering loosening the rules for its bond purchases” amid scarcity at the volume of debt now available after the Brexit vote, citing “euro-area officials familiar with the discussions”. Needless to say, with this being the outlook, a Fed hike before December, similarly, isn’t on the agenda at the moment.