I’ve been working in the markets for over 25 years and most of the time I love it. Some days, however, the way the markets react to news really disappoints me. There are lots of ways to make money in the markets so I’m not one for profiting on the misfortunes and tragedies of others. I don’t think markets should cheer when a company announces layoffs for example. The way gun stocks rallied on Monday after the Florida weekend massacre was embarrassing enough, but today’s trading takes the cake.
The murder of UK Labour MP Jo Cox, a proponent for remaining in the EU, in what appears to have been a politically motivated act (details are still sketchy at the time of writing) sent shockwaves through world markets today. Prior to that news, a combination of more Brexit polls showing the Leave side gaining momentum and central banks frozen in place like deer caught in the headlights of an oncoming truck had capital flowing into defensive havens like gold and out of stocks. GBP had been weakening but was holding $1.4000. Strong 6.0% growth in UK retail sales showed that despite forecasts to the contrary, the public has not been shaken by the fear campaign and the economy has been picking up momentum in tandem with the Leave side.
The news of her passing sparked a huge reversal for markets that sent Cable up 2 big figures off its lows from $1.4000 to $1.4200, gold down $30.00 off its highs and stocks into rebound mode. Market action suggests traders think this could become a turning point in the Brexit campaign shifting the momentum from Leave back to Remain or delaying the vote. I could see markets pausing or a small reversal but seeing markets get carried away and staging huge moves like this feels excessive and disrespectful.
It’s too early to say for sure what impact this may have on the vote or on the markets in the coming days. Having seen the political reaction to the weekend nightclub massacre in Florida, it seems to me that events like these tend to entrench people’s opinions, not change them.
The big relief rally sparked by today’s tragedy does indicate that the prospects of a Brexit had already been priced into Sterling, gold and some other currencies. Since its still uncertain what could happen from here, we could see more big intraday swings
and reversals over the next 24 hours, through the rest of the campaign and possibly after the votes are counted.
It’s a relatively quiet day for scheduled news. JPY pairs may remain active in reaction to yesterday’s Bank of Japan decision to take a neutral course ahead of next week’s Brexit vote and next month’s upper house elections. NZD could be active around a manufacturing PMI report while Singapore markets could be active around trade figures.
Crude oil continued to fall out of bed today as its correction accelerated, dragging on CAD and overshadowing comments from Bank of Canada Governor Poloz on the Canadian economy. He indicated that while uneven, the economy continues to grow with the positive impact of the lower loonie on exports and tourism starting to really kick in. Due to the impact of last month’s Alberta which blew a 1.00-1.25% hole in GDP growth, Q2 could be slightly negative. Growth is expected to run higher in Q3, however, as oil sands operations come back on line and reconstruction begins.
Tomorrow, CAD could be influenced by inflation figures. The weekly drill rig count may impact oil trading as well. While some traders have focused on increases, note that we are near a seasonally weak time of year for energy exploration and that it’s totally normal for drilling to pick up again in the summer.
Oracle $0.81 vs street $0.83
Significant announcements released overnight include:
UK BoE decision 0.50% and £375B no change as expected
Swiss SNB decision no changes as expected
UK retail sales 6.0% wow! vs street 3.9%
UK retail ex auto 5.7% vs street 3.8%
US consumer prices 1.0% vs street 1.1%
US core CPI 2.2% as expected
US real average weekly earnings 1.1% vs previous 1.3%
US Philadelphia Fed 4.7 vs street 1.0 vs previous (1.8)
US jobless claims 277K vs street 270K
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)
8:30 am AEST NZ BusinessNZ manufacturing PMI previous 56.5
10:30 am AEST Singapore non-oil domestic exports street (1.6%)
10:30 am AEST Singapore electronic exports street (1.4%)
8:30 am EDT US housing starts street 1,150K
8:30 am EDT US building permits street 1,145K
8:30 am EDT Canada consumer prices street 1.6%
8:30 am EDT Canada core CPI street 2.1%
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