It has been another volatile night for world markets. Capital has been exiting stock markets for havens in bonds and elsewhere although the declines have not been as severe as yesterday. The Nikkei is down 1.0% while the hang Seng is down 0.6%. In Europe, the FTSE and CAC are down about 1.25% while the Dax is down 0.75%. US index futures are down only marginally with the Dow and S&P off only a few points or about 0.1%.  Brent and WTI crude are down about 0.6% while gold’s rally appears to be running out of steam with the yellow metal down 0.2%.  

Historically May and June have been two of the weaker months of the year for stocks. This year, until the last few days, the usual seasonal correction had not materialized but bears have come back with a vengeance. Much of the blame for the seasonal selloff roaring to life has been heaped on news out of the UK that the Leave side continues to gain momentum heading into next week’s Brexit referendum. Overnight a YouGov poll showed Leave ahead 46%-39% while betting companies Betfair and William Hill indicated betting momentum shifting toward the Leave side and the Sun, one of the UK’s largest newspapers, endorsed the Leave campaign.   

This news has kept the pressure on the pound while the FTSE broke the 6,000 level. It’s important, however, to put this in perspective. Even with a 0.7% decline today against USD, GBP is still trading well above its April low near $1.4000 and its February low near $1.3825. Today’s GBP decline is similar to the Euro’s 0.6% decline and less that the declines seen in other European currencies like NOK, SEK and PLN. The one major European currency down less is CHF which has attracted some defensive flows today. 

The big beneficiary of capital leaving Europe continues to be JPY which is the top performing major currency again today Capital also appears to be heading for bonds with the Germany 10-year Bund yield falling into negative territory for the first time. 

Although we have seen some weakness in risk markets and some breaches of round numbers, a number of key levels have held indicating the situation has not devolved into a full blown panic either despite the noise. For example, the USD Index remains below 95.00, well short of the 100.00 level it peaked at late last year. Gold appears to be levelling off short of $1,300. USDJPY is retesting 105.00 but has not broken it and may be putting in a double bottom. The bottom has not fallen out from under crude oil with WTI still holding $48.00 as the International Energy Agency raised its 2016 demand forecast. This action suggests we may be approaching a point of maximum fear and pessimism. 

Markets may remain volatile through the day today and over the next several days with a number of big events on the way. US retail sales are due this morning, one of the last major data points for the Fed to consider before tomorrow’s interest rate decision, Although the Fed is expected to keep interest rates on hold again (using soft nonfarm payrolls and Brexit as excuses), any signals it may send though its member projections statement or press conference about July could have a significant impact on trading sentiment. Don't forget that the reason the Fed has been discussing raising rates is because the US economy has been doing well and that nonfarm payrolls softness was an outlier relative to other recent reports, employment or otherwise. 

 

Corporate News

There have been no major corporate announcements in North America so far today. 


Economic News

Significant announcements released overnight include:

Overnight Brexit updates

YouGov        Leave 46% Remain 39%

Betfair            odds for Remain down to 59% from 64% yesterday and 78% last Thursday

William Hill        betting favourite expected to flip from Remain to Leave by the weekend

The Sun Newspaper    endorses the Leave campaign


UK consumer prices            0.3% vs street 0.4%
UK core CPI                1.2% vs street 1.3%
UK retail prices                1.4% vs street 1.5%
UK producer input prices        (3.9%) vs street (5.1%)
UK producer output prices        (0.7%) vs street (0.5%)

Eurozone industrial production        2.0% vs street 1.4%
Eurozone employment            1.4% vs previous 1.2%

Spain consumer prices            (1.0%) as expected
Spain core CPI                0.7% unchanged
Sweden consumer prices        0.6% vs street 0.7%

NZ Food Prices                (0.5%) vs previous 0.3%
Australia NAB business conditions    10 vs previous 9
Australia NAB business confidence    3 vs previous 5
Japan industrial production        (3.3%) vs previous (3.5%)

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)  

There are no major announcements scheduled for North America today

8:30 am EDT        US retail sales                 street 0.3% vs previous 1.3%
8:30 am EDT        US retail ex auto            street 0.4% vs previous 0.8%

8:30 am EDT        Canada Teranet house prices        previous 8.1%