Stock markets around the world are falling to start the week while defensive havens are rallying ahead of several major potentially market rocking events including meetings of the Federal Reserve Board, Bank of Japan and Bank of England this week, plus the UK Brexit Referendum, and elections in Spain plus Australia later this month.
To kick off the week, stocks markets in Asia sold off sharply with the Nikkei
falling 3.5% and the Hang Seng falling 2.5%. Continental indices are also getting hit with the Dax, CAC and IBEX all down about 1.3%, but the FTSE is down only 0.6%. US index futures for the Dow and S&P are down about 0.4%. Gold is up another $10.00/oz today or about 0.8%. In currency trading there is a big divergence between a soaring JPY and a plunging GBP with most other majors relatively steady Currency action is also mixed with crude oil down 0.7%, but copper up 0.6% and grains soaring led by a 1.8% gains for corn and oats.
The big news driving market action coming out of the weekend has been Brexit polls showing the Leave side gaining momentum and running wither neck and neck now or opening a big lead. Late Friday a ORB poll showing Leave opening up a 55%-45% lead. GBP sold off on that news and has been under pressure again today. There are a few interesting takeaways from today’s trading, however:
USDGBP fell toward $1.4120 still trading well above its April low near $1.4000 and its February low near $1.3840. It has since rebounded toward $1.4200 so while there was a short-term knee-jerk reaction to the polls, the growing prospect of a Brexit has not sparked a full-blown panic. This also tells us that the prospects for a close race are likely to get baked into the market before the vote.
For capital leaving the UK on Brexit fear, the havens of choice have been JPY and gold, not EUR and CHF. This indicates that traders recognize a Brexit decision could have a negative impact on the EU.
The FTSE is outperforming continental indices today. A falling GBP heading toward a potential Brexit could cushion the blow from uncertainty for UK companies and may actually help to make the UK an even more attractive place to do business relative to continental Europe. (Think of Japan where the currency and stocks often trade in opposite directions)
Here’s something to consider when the Bank of England meets later this week. As usual governor Carney is expected to do nothing but if the Chorus of Brexit Doom’s forecasts actually came to pass and GBP were to plunge, the central bank’s next move would likely have to be a rate hike to defend the currency, not a cut as some expect. A falling pound would provide stimulus just as we’ve seen in Canada with the lower loonie helping to offset the impact of the oil price crash.
Clearly, it looks like we could see significant volatility and trading opportunities in UK markets through this month’s vote.
China data is also in the spotlight today where retail sales and industrial production met expectations but fixed assets and foreign investment fell short. Reaction has been mixed with stocks lower but copper higher.
There isn’t any major US economic news today which is just as well with the country still reeling from the weekend’s tragic massacre in Orlando. Security firm G4S who employed the gunman is trading down 5.8% today. US data picks up again tomorrow heading toward Wednesday’s FOMC decision. Although the Fed is expected to take no action this month, any signals through the statement about its plans for July through the statement, press conference or member projections could move the markets.
There have been no major corporate announcements in North America so far today.
Significant announcements released overnight include:
China retail sales 10.0% vs street 10.1%
China industrial production 6.0% as expected
China fixed assets 9.6% vs street 10.5%
China foreign investment (1.0%) vs street 5.0%
UK Weekend Brexit polls and betting:
ORB (late Friday) Leave 55% Remain 45%
Opinium/Observer Remain 44% Leave 42%
YouGov/Sunday Times Leave 43% Remain 42%
Bruges Group/Opinium Leave 52% Remain 33%
Betfair cut odds of a Remain vote to 70% from 78%
Sweden unemployment rate 3.6% vs street 3.7%
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