Daily Market Update 20th June 2016
ECONOMIC DATA OF THE DAY
| Time | CY | Indicator | Forecast | Previous |
|---|---|---|---|---|
| 02.00pm | EUR | Germany PPI MoM | 0.3% | 0.1% |
(Source: FabTrader)
OVERNIGHT NEWS
- US: U.S. housing starts dropped to -0.3% from +6.6% the previous month (Exp. -1.9%)
- Fed Speech: St. Louis Federal Reserve President James Bullard said the U.S. economy might only need one interest rate increase through 2018. Bullard said his change in outlook in driven by a belief that the current path of modest economic growth is likely to continue. In a paper titled ‘The St. Louis Fed's New Characterization of the Outlook for the U.S. Economy’ Bullard and his co-authors wrote that the upshot of their new approach “delivers a very simple forecast of U.S. macroeconomic outcomes over the next 2 ½ years. Over this horizon, the forecast is for real output growth of 2%, an unemployment rate of 4.7%, and trimmed-mean PCE inflation of 2%. In light of this new approach and the associated forecast, the appropriate regime-dependent policy rate path is 63bps over the forecast horizon.” Bullard also called for the Fed to do away with its practice of forecasting long-run values for economic growth and the target policy rate. The Fed's "dot plot" of projected interest rate policy "appears to be too steep. Fed funds futures markets do not seem to believe it. They are priced for a much shallower pace of increases," Bullard said. "The Fed's actual pace of rate increases has been much slower than what was mapped out by the committee in the past. This mismatch between what we are saying and what we are doing is arguably causing distortions in global financial markets, causing unnecessary confusion over future Fed policy, and eroding credibility of the (FOMC)”
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 93.78 | -0.55% | 93.916 – 94.59 |
| EURUSD | 1.134 | 0.64% | 1.1223 – 1.1342 |
| USDJPY | 104.63 | 0.42% | 104.08 - 104.81 |
| AUDUSD | 0.7424 | 0.46% | 0.7371 – 0.7438 |
| GBPUSD | 1.4536 | 1.58% | 1.4222 - 1.449 |
(Source: FabTrader)
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1291.45 | 0.60% | 1276.67 - 1299.75 |
| Silver | 17.46 | 0.90% | 17.2116 - 17.5117 |
| Oil (BRENT) | 49.47 | 3.76% | 47.5 – 49.58 |
| Oil (WTI) | 48.29 | 4.01% | 46.37 – 48.49 |
(Source: Bloomberg and Saxo)
COMMODITIES
Gold: Money managers boosted their net-long positions in gold futures and options by 29% to 240,862 contracts in the week ended June 14, according to U.S. Commodity Futures Trading Commission data released three days later. The all-time high was 253,653 reached in August 2011. The market is well positioned for a Brexit. If the Remain camp wins, expect a huge selloff in Gold
Oil: Oil rallied following the USD selling on Friday with low volume trading in the market
FOREX NEWS
A lot of Cross / JPY buying on Friday on a risk on mode before the week end after a whole week on uncertainties around the Brexit. EUR is getting close again to the top of the range at 1.14/1.15 with the support being at the 200d MA at 1.1100.
USDCAD traded lower on the back of oil higher and back at the 50d MA at 1.2856. Despite the rally in USDJPY, the main resistance that triggered the big move lower is at 105.50 and we should see offers there from the big funds
All USD/Asia traded much lower as well on the back of risk on mode, oil higher, with USDMYR, USDKRW, USSDBRL all lower 1% or more
IMF Revives Recession Warning for U.K. Economy Over Brexit Vote
The International Monetary Fund weighed in once more with its thoughts on Britain’s referendum, warning the U.K. could slide into a recession if it quits the European Union.
In a 64-page document, the Washington-based fund said that the size of the hit would depend on a multitude of factors, though its overall assessment is that the U.K. “would likely be worse off economically in the long run.”
The IMF also warned of a potential credit squeeze if liquidity markets dry up, which could stymie spending and investment. The Bank of England has moved to preempt this with additional auctions to make funds available to banks before and after the vote.
The IMF delayed publication of the report by a day after campaigning in the referendum was halted following the fatal shooting of Labour Party lawmaker Jo Cox on Thursday. Speaking on Friday, Managing Director Christine Lagarde said her thoughts were with Cox’s family and friends.
‘Adverse’ Scenario
In its report, the IMF presented forecasts for “limited” and “adverse” Brexit scenarios. In the worse situation, it sees growth slowing sharply this year and the economy shrinking 0.8 percent in 2017. The impact would see the economy 5.6 percent smaller by 2019 compared with a baseline forecast, while unemployment would rise above 6 percent and the deficit would be wider.
IMF officials said that a permanent hit to output would probably mean deeper austerity. Chancellor of the Exchequer George Osborne has said an emergency budget would be required within two months of a Brexit to fill a hole in the public finances.
“While recognizing that this choice is for U.K. voters to make and that their decisions will reflect both economic and non-economic factors, directors agreed that the net economic effects of leaving the EU would likely be negative and substantial,” the organization said.(Source: bloomberg.com)
