Markets rose during the holiday shortened week on the back of positive economic data and further recalibration of the Brexit impact and implications. Both stock and bond markets tallied gains and closed the week at or near historic levels. The S&P 500 closed within a point of the May 2015 record high and the 10yr U.S. Treasury bond yield finished the week at an all‐time record low yield of 1.366%. Overseas equity markets remain less sanguine than the U.S. Year to date, Europe (‐11%) and Japan (‐21%) are exhibiting far more anxiety over economic growth and currency fluctuations. Since the Brexit vote, the Pound is down 11% versus a basket of currencies and U.K. banks are ‐20%, in USD terms, as expectations build for renewed QE from the Bank of England, which Goldman Sachs forecasts to begin in August at approximately ￡100b. Meanwhile, in a headwind for the export sector in Japan, the Yen has appreciated nearly 20% over the past year. Global bond markets are firmly in unchartered waters with ⅓ of all sovereign bonds ($13t per BoA Merrill Lynch) trading in negative yield territory. In a global chase for yield, emerging market debt yields garnered their highest inflows on record while many other bond market participants settle for less than 0% yields. In a remarkable sign of the times, 50 year Swiss bonds and 80% of the German and Japanese government bond issues are trading at negative yields while Disney floated the lowest long term U.S. corporate bond yields on record with 10yr and 30yr paper garnering 1.85% and 3% respectively. The closely watched 2yr‐10yr yield curve spread (0.82%) has fallen to its narrowest level since November 2007. It was a second straight positive week for the U.S. equity markets following the June 24th Brexit surprise and relatively encouraging U.S. economic reports. Friday’s June jobs report was particularly encouraging as 287,000 jobs strongly beat consensus expectations of 180,000 and marked a clear reversal from May’s disappointing count of 11,000. Also encouraging were wages rising 2.6%, the fastest annual rate since July 2009, while increased labor market participation bumped the unemployment rate up to 4.9%. Markets will now likely shift their attention to second quarter earnings releases which begin this week. Consensus second quarter expectations of ‐ 5% would mark a fifth consecutive quarter of year over year earnings declines. Energy stocks came under some renewed pressure last week as oil traded down ‐ 7.3% to $45.41.
