t’s been a big day for trading with significant swings in both directions and the Brexit votes haven’t even been counted yet. Markets moved up in the morning as traders anticipated a return to stability and reduction of uncertainty following today’s vote. Traders may have moved too far ahead of themselves and worried about getting caught out on a limb, markets came back down through the day.
USD bounced back from some recent weakness following better than expected jobless claims. The initial response to the soft nonfarm payrolls was that slowing job growth was a sign of a slowing economy. Jobless claims since then along with other strong data points increasingly suggests that slowing job growth may be a sign that the US is nearing full employment, confirming comments earlier this month by Boston Fed President Rosengren that at 4.7% the unemployment rate was reaching his estimate of full employment.
Trading through the Asia Pacific trading day is likely to be dominated by Brexit voting results. Ric Spooner has prepared a Brexit Results Timetable for reference. I’m including recent comments from Michael Hewson and repeating my Brexit trading preview.
Sterling set for a rollercoaster 24 hours?
19:30BST Thursday 23rd June 2016
By Michael Hewson (Chief Market Analyst at CMC Markets UK)
This week’s fairly high risk move back into sterling and stock markets would appear to suggest markets are confident of the final outcome being a vote for the status quo so to speak, as voting comes to a close at the end of pretty miserable day weather wise.
Wagering large amounts of money when the upside profit is about 20% of your total stake, either means that you are extremely confident of the final outcome, or that you have more money than sense.
In a binary outcome there can only be one result, heads or tails, and given that opinion polls continue to point to an uncertain result, albeit slightly in favour of “Remain”, who can say with that amount of confidence that “Remain” will definitely win.
Let’s face it the accuracy of opinion polls in recent times shows there is always the prospect of what we can now call a “Leicester City” moment.
As it is the FTSE100 has gained nearly 7% in the last 7 days while the pound has rebounded from lows of 1.4010 to peak earlier today at 1.4950, and post its highest levels this year, as the polls continue to improve in favour of “Remain”.
This suggests that a good part of this “Remain” bounce could well be largely priced in already and if we get some early results in the early hours of the morning pointing to a move back to the “Leave” camp then sterling could drop back sharply, potentially dragging stock markets down too.
It looks like we could be in for an interesting night, so it’s time to order in the food and black coffee.
Brexit Trading Preview by Colin Cieszynski
The Brexit referendum results have had a significant impact on trading in recent weeks and may drive markets swings in the coming days as traders digest the decision. Action may be focused on Sterling (GBP), particularly relative to the Japanese Yen (JPY), Euro (EUR) and US Dollar (USD).
Since the start of the year, GBPUSD has been trading in a wide range between $1.4000 and $1.4800. The recent rally from the bottom of this range to the top reflects a swing in sentiment expecting a Leave win to one expecting the UK to vote to Remain in the EU. It would appear that GBPUSD has priced in the odds of a vote to Remain at $1.4000 0%, $1.4200 25%, $1.4400 50%, $1.4600 75% and $1.4800 100%. Earlier today GBPUSD traded up toward $1.5000 which I considered an overshoot level before dropping back.
Despite forecasts of even more extreme swings from some quarters, these appear unlikely because the higher the volatility the higher the potential central banks would step in to intervene. In recent days, the ECB, Bank of Japan, Fed, Riksbank, Swiss National Bank, G-7 and others have indicated they are ready for the results and prepared to step in and stabilize markets if needed. The last thing these countries want is a big GBP devaluation driving up the valuation of their own currencies, exporting deflation to their countries and undermining their own monetary stimulus programs.
Defensive havens like gold, JPY, USD, CHF and bonds may be active reflecting traders’ expectations following the vote. If traders become fearful, capital could flow out of stocks and other risk markets into defensive havens driving them higher. On the other hand, a relief rally like the one markets staged earlier this week could send stocks higher and those markets lower. Key levels include
Note that while a Leave vote could weigh on the FTSE, if the pound were to crash it actually could send the FTSE sharply higher because it would make the shares of UK based multinationals suddenly much cheaper than their peers.
Current trading and betting suggests that traders are pricing in about a 75% chance of a Remain win regardless of how close the result may be. With many polls indicating a very close race right to the wire, there is still a chance that Leave could win, with some people forecasting that the voter turnout may end up deciding the result. Based on current trading, a Leave win would come as a slightly bigger surprise than a Remain win so we could see more volatility and larger moves on a decision to Leave than one to Remain which was priced in earlier this week. It’s also possible that with the race so close, we could still see significant swings in both directions in the coming days.
There have been no major corporate announcements after the close today.
Significant announcements released overnight include:
US jobless claims 259K vs street 270K
US Markit flash manufacturing PMI 51.4 vs street 50.9
US new home sales 551K vs street 560K vs previous 619K
US natural gas storage 62 BCF vs street 60 BCF
US KC Fed vs street (5)
France flash manufacturing PMI 47.9 vs street 48.7
France flash service PMI 49.9 vs street 51.6
Germany flash manufacturing PMI 54.4 vs street 52.0
Germany flash service PMI 53.2 vs street 55.0
Norway Norges Bank interest rate 0.50% no change as expected
Italy industrial sales 0.1% vs previous (3.6%)
Italy industrial orders (11.3%) vs previous 0.1%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
10:00 pm BST UK Brexit polls close, no exit polls, counting starts
5:00 pm EDT
7:00 am AEST Fri
TBA Brexit results to come out over the course of the day, see our Brexit results timetable blog
3:00 pm AEST Singapore industrial production street 1.0%
7:00 am BST approx final results of UK Brexit referendum expected
7:45 am BST France GDP street 1.4%
9:00 am BST Germany IFO business climate street 107.4
9:00 am BST Germany IFO current assessment street 114.0
9:00 am BST Germany IFO expectations street 101.2
9:00 am BST Italy retail sales previous 2.2%
8:30 am EDT US Durable goods orders street (0.5%)
8:30 am EDT US durables ex transport street 0.1%
8:30 am EDT US capital goods nondefense ex air street 0.4%
10:00 am EDT US consumer sentiment street 94.1
11:00 am EDT PBOC Xiaochuan speaking in US
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