Daily Market Update 27th June 2016
OVERNIGHT NEWS
- BREXIT: The UK voted 51.9% against 48.1% to leave
- Moody’s Change the Outlook on UK’s long term issuer and debt ratings to negative from stable. Both ratings affirmed at Aa1
- Scotland said that a new Independence vote is in the picture and wants to stay in the Eurozone
- David Cameron decided to resign. A new prime minister should be in place in November
- The public backlash has also begun with an online petition calling for a second EU referendum gaining more than 3 million signatures
- Lord Hill, the EU Commissioner for financial services has announced his resignation
- Brussels wants that the UK should not wait too long before invoking the Article 50 process. David Cameron has refused to do so on the grounds that it is up to the next prime minister to negotiate an exit
- The Brexiteers do not have a coherent plan to manage the exit process
- One prominent Brexit campaigner, Iain Duncan Smith, denied in a TV interview this morning that he ever said that the NHS would get an extra £350m per week in the event of Brexit. Yet it was a pledge emblazoned on the side of the Brexit campaign bus and Nigel Farage admitted on Friday that the promise was “a mistake.”
- Another prominent Brexit supporter, Daniel Hannan MEP, was accused in the BBC’s flagship current affairs programme on Friday of advocating an immigration policy “completely at odds with what the public think they have just voted for” after admitting that the UK would adopt a policy which required continued free movement of labour
- The FT reporting that banks are making plans to shift positions out of London amidst warnings that the EU will not give the UK an easy ride
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 96.08 | 2.36% | 93.714 – 96.372 |
| EURUSD | 1.1034 | -2.27% | 1.0913 – 1.1189 |
| USDJPY | 102.23 | -2.50% | 99.02 - 103.26 |
| AUDUSD | 0.7425 | -1.51% | 0.7306 – 0.7511 |
| GBPUSD | 1.3428 | -7.39% | 1.3229 - 1.3981 |
(Source: FabTrader)
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1330.97 | 5.02% | 1264.25 - 1358.54 |
| Silver | 17.87 | 2.70% | 17.297 - 18.3305 |
| Oil (BRENT) | 48.01 | 2.98% | 47.54 – 50.31 |
| Oil (WTI) | 47.16 | 4.11% | 46.7 – 49.45 |
(Source: Bloomberg and Saxo)
COMMODITIES
Precious Metals: Money managers boosted their net-long position in gold futures and options by 6.7 percent to 256,898 contracts in the week ended June 21 so there was 1 asset class when the investors were right was gold and the Brexit vote pushed gold to new highs at 1358 before settling a bit lower. The interest to stay long will hold for now. Any move below 1300 will trigger stops
Oil: Oil just followed the rest of the risk off mood and dropped 3 to 4%. Oil fundamentals will be put on the side for the time being
FOREX NEWS
Strong USD rally triggered by the Brexit results. The market was definitely not positioned for it. The same way voters voted to the Brexit as a vote of contestation, the market was not expecting it. After reaching the high of the year after the first votes in, GBP had a freefall to a low of 1.3229 before recovering slightly. 1.4000 should be the level to watch as it was the previous low ahead of the Brexit and a lot of Funds are waiting for this small rally to sell again.
It also meant strong USD rally on the back of all this uncertainty against all the other currencies except JPY with selling of Cross/JPY on risk off pushing USDJPY down to 99.02 very quickly and triggering verbal interventions from the Japanese governments
USD also rallied against EM but the move was not as pronounced as the rest.
There will be uncertainty from now on and a negotiation for a complete Brexit could last up to 2 years, if not more if they agree to delay. Considering the fact the Brexiteers officials have not thought that far on the process, expect more headlines coming out that will contradict themselves. The simple view based on that should be a continuation of USD rally
Sterling steadies slightly after Osborne statement
Sterling recovered around half a cent from overnight lows as trading got going in London on Monday, but was still 2 percent down from levels hit at the end of its worst day in modern history on Friday.
Chancellor George Osborne's promise to stay on for the moment and implement "robust" contingency plans with the Bank of England if need be steadied nerves somewhat and sterling inched up to trade around $1.3430 from lows of $1.3356 overnight. GBP=D4
Since the result of Thursday's vote became clear, however, a raft of banks have forecast the pound to head below $1.30 and even against a weakened euro it was down another 1.2 percent at 82.20 pence. EURGBP=
"The clear risk must be for further downside," said Neil Mellor, a currency strategist at Bank of New York Mellon in London.
"Uncertainty equals currency weakness, we know this, and there is no sense that this (sterling) is a value trade right now and that you have to get back in. It is too early for anyone to start calling a bottom."
Analysts from Canada's RBC Capital Markets pointed to the history of past sell-offs as pointing the way towards $1.20-1.25 for the pound by the end of the third quarter of this year.
"The 7 percent fall (against the euro and dollar) is, so far, very small in the context of historical collapses," they said in a weekend note.
"During eight independent price slumps over the last 40 years, sterling has on average fallen 18 percent." (Source: reuters.com)
