une has historically been a weak month of the year for stocks and this month is turning out to be no exception. Three central bank meetings this week and growing uncertainty about what the UK and EU relationship could look like going forward have pushed bulls to the sidelines. The FTSE fell 2.0% with pressure increasing following a technical break of the 6,000 level while the CAC fell 2.2% and the Dax
fell 1.4%. In North America major US and Canadian indices fell 0.50%-0.75%
Part of the downward pressure on stocks was related more poll results showing the Leave campaign continuing to gain momentum heading into next week’s Brexit vote sparking a flight of capital to defensive havens. Bonds rallied again pushing the German 10-year yield into negative territory for the first time. Defensive currencies like JPY and CHF also gained while gold levelled off after leading the charge in recent days.
GBP also fell on the news but continued to hold $1.4100 technical support. It seems like each time a pro-Leave poll comes out, Cable gets knocked down a big figure then stabilizes and often bounces back to varying degrees. Today GBPUSD fall about 1.0% but other European currencies fell relative to USD as well including EUR down 0.7%, NOK and SEK down about 1.0%, and PLN down 1.3%. This indicates traders recognize that an EU without the UK faces serious questions and risks of its own. Tomorrow morning brings the latest UK employment report which may indicate whether or not the Brexit debate has had any impact on the broader economy. Recent data has suggested so far the UK economy continues to grow, ignoring the debate to date.
US traders also spent the day preparing for tomorrow’s FOMC meeting. Ahead of the meeting there is a final round of morning data the most important of which is industrial production. Today’s retail sales report was better than expected, indicating robust consumer spending. Of late, the one disappointing hard economic number (no surveys or sentiment indicators), was the nonfarm payrolls report, but that appears to be enough to keep the Fed on hold for now.
That being said, any signals the Fed gives may attract significant attention. After the payroll report, Fed Chair Yellen talked up the economy saying not to read too much into one data point and hinting upcoming member projections could be significant. USD has been climbing toward 95.00 indicating traders still pricing in 2 rate hikes this year and stocks fell through the day.
Fed members could use the statement (wording or number of dissenters), the projections (any change to GDP or inflation forecasts) or Chair Yellen’s press conference to signal whether they are still thinking about a July rate hike or not. Because of the upcoming Presidential election campaign, the Fed is unlikely to act in September or especially October so if the Fed delays now, the window for a hike may not reopen until December which would mean one increase at most this year. Because of this, any interest rate signalling could have a significant impact on trading in US stocks, bonds, USD, gold and other currencies.
Asia Pacific news flow is relatively light today but markets could still be active on broader global sentiment. JPY in particular could see some positioning ahead of tomorrow’s Bank of Japan meeting plus defensive capital inflows and outflows. USDJPY
continues to test 105.00 which could end in a double bottom or a big breakdown. GBPJPY may remain active on Brexit related flows recently trading near the 150.00 round number.
There have been no major corporate announcements so far this evening.
Significant announcements released overnight include:
Overnight Brexit updates
TNS Leave 47% Remain 40% among likely voters
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 endorsed the Leave campaign
US retail sales 0.5% vs street 0.3% and previous 1.3%
US retail ex auto 0.4% as expected vs previous 0.8%
Canada Teranet house prices 9.0% vs previous 8.1%
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%
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)
7:00 am AEST NZ REINZ house sales previous 18.4%
10:30 am AEST Australia consumer conf previous 103.2
3:00 pm AEST Singapore retail sales street 6.1%
3:00 pm AEST Singapore retail ex auto street (2.3%)
9:30 am BST UK jobless claims street 0K vs previous (2.4K)
9:30 am BST UK 3M employment change street 60K vs previous 44K
9:30 am BST UK average weekly earnings street 1.7% vs previous 2.0%
9:30 am BST UK unemployment rate street 5.1%
8:30 am EDT Canada manufacturing sales street 0.6% vs previous (0.9%)
9:00 am EDT Canada existing home sales previous 3.1%
8:30 am EDT US producer prices street (0.1%)
8:30 am EDT US core PPI street 1.0%
8:30 am EDT US Empire Manufacturing street (4.5) vs previous (9.0)
9:15 am EDT US industrial production street (0.2%) vs previous 0.7%
9:15 am EDT US manufacturing production street (0.1%) vs previous 0.3%
10:30 am EDT US DOE crude oil inventories street (2.3 mmbbls)
10:30 am EDT US DOE gasoline inventories street (0.175 mmbbls)
2:00 pm EDT US FOMC decision 0.50% no change expected
2:00 pm EDT US FOMC statement and member projections
2:30 pm EDT US FOMC Yellen press conference
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