Daily Market Update 28th June 2016
OVERNIGHT NEWS
- BREXIT:
- S&P lowered the rating to AA from AAA, citing the risk of a less predictable, stable, and effective policy framework in the U.K. The cut also “reflects the risks of a marked deterioration of external financing conditions” and constitutional issues arising from the majority of voters in Scotland and Northern Ireland having opted to remain in the EU.
- New Elections: The timeline will be Nominations for candidates close Thursday 30 June at midday, with official candidates subsequently announced. The election process occurs in July/August among both the Parliamentary Party and the grassroots membership. Cameron's successor is expected to be known, at the latest, by Friday 2 September.
- David Cameron highlighted that Article 50 has yet to be submitted to the EU, however rejected calls for a revote. He also set up a team to prepare for the exit which includes Scottish and Northern Irish officials. He underscored how important the EU relationship is noting “Britain will be leaving the European Union but we must not turn our back on Europe or the rest of the world.”
- US:
- Markit Services PMI came in at 51.3 (mkt: 52.0) from 51.3 in May. The future activity index dipped to 57, from 60; the employment index rose 0.2pts to 52.0; and current business activity was up 0.1pts to 51.3. The composite PMI was at 51.2, from 50.9 previously.
- Advance Goods Trade Balance down to -$60.6b from -$57.5b (Exp. -$59.5 Bn). Exports fell 0.5% m/m sa in May, following a 2.4% gain the previous month. Import growth came in at 1.4%, from 2.5%. This was the second consecutive month of firm industrial supply imports, up 5.3%, from 3.4%. Exports were weighed down by a 5.1% fall in automotive exports and a 1.7% in capital good shipments.
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 96.54 | 0.28% | 95.807 – 96.705 |
| EURUSD | 1.1015 | -0.07% | 1.0971 – 1.1084 |
| USDJPY | 101.9 | 0.17% | 101.41 - 102.19 |
| AUDUSD | 0.7346 | -0.96% | 0.7325 – 0.7452 |
| GBPUSD | 1.3234 | -1.25% | 1.3121 - 1.3475 |
(Source: FabTrader)
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1325.18 | 0.53% | 1317.67 - 1333.88 |
| Silver | 17.76 | 0.75% | 17.6355 - 17.8842 |
| Oil (BRENT) | 47.16 | 2.33% | 46.83 – 49.24 |
| Oil (WTI) | 46.70 | 1.08% | 45.83 – 47.96 |
(Source: Bloomberg and Saxo)
COMMODITIES
Precious Metals: Gold rallied yesterday but expect a bumpy road on the rally with the market already massively long. Some profit taking was seen yesterday. The main support is at 1300
Oil: The risk off environment continued to push Oil prices lower
FOREX NEWS
The meltdown in GBP continued after the downgrade from S&P touching new lows at 1.3121 before recovering at the close slightly. Commodities currencies like AUD and NZD following on the risk off. There was very large bids yesterday at 1.3150 in GBP with feelings in the market that BOE could be behind that move (of course, nothing is confirmed).
EM currencies traded well after the gap at the open yesterday but sold off once NY came in pushing the USD to new short term highs against KRW, SGD.
Fundamentally, we are just at the start of the mess that the Brexit will bring to the market. The risk of contagion in the rest of Europe is very well intact
Ratings agencies rip into UK's credit score after Brexit vote
Britain suffered further blows to its economic standing on Monday as two top ratings agencies downgraded its sovereign credit score, judging last week's vote to leave the European Union would hurt its economy.
Standard & Poor's stripped Britain of its last remaining top-notch credit rating, dropping it by two grades from "AAA" to "AA" and warning more downgrades could follow.
Fitch Ratings also downgraded its ranking for Britain's creditworthiness by one notch, and similarly said more cuts could follow.
The ratings agencies effectively added a rubber stamp to the market's view of the Brexit vote, as sterling tanked to a 31-year low against the U.S. dollar on Monday and stock markets fell for a second trading day since the referendum last Thursday.
It was the first time S&P had chopped an AAA-rated sovereign credit rating by two notches in one move.
"In our opinion, this (referendum) outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK," S&P said in a statement.
Finance minister George Osborne said on Monday the British economy was strong enough to cope with the volatility caused by Thursday's referendum.
But the vote has plunged the country into a political crisis, with the ruling Conservative Party looking for a new leader after Prime Minister David Cameron said he would stay on until October, delaying the launch of negotiations with the EU and leaving the country's economic prospects under a cloud of uncertainty.
The added prospect of a new independence referendum in Scotland, which voted strongly to stay in the EU, threatens the constitutional and economic integrity of the United Kingdom, S&P warned.
Fitch more than halved its growth forecast for Britain's economy in 2017 and 2018 to just 0.9 percent for both years, from 2.0 percent previously.
Long-dated U.S. Treasury yields fell to session lows after S&P's decision. British 10-year government borrowing costs had already fallen below 1.0 percent for the first time during European trading hours. [GBP/]
S&P warned financial firms, especially foreign ones, might look to other destinations for investment after Britain leaves the EU.
The remaining major ratings agency, Moody's, which took away Britain's AAA-rating in 2013 because of the country's high levels of debt and slow growth, said on Friday it could cut the rating further.
Moody's will downgrade the credit rating outlook for major British banks to "negative" on Tuesday because of the fallout from the vote to leave the EU, Sky News reported, citing sources.
Protecting Britain's credit rating was a top priority of Conservative finance minister George Osborne when he came to power in 2010. (Source: reuters.com)
