27-06-2016
UK EU Referendum Ends with
a Leave Win Unleashing a Chaotic Market Reaction
Voters in the United Kingdom decided by a 51.9 to a 48.1 percent
to leave the European Union in the final result of the referendum. Financial
markets were surprised as days before the vote the Remain camp had made inroads
but as results started to come in that lead never materialized. The historic
referendum brought to the surface the deep tensions that have divided the
British people and have now come to a democratic decision to reclaim their
sovereignty by leaving the European Union.
The
result has had an immediate global market impact with stock markets and
currencies witnessing high volatility. Central banks around the world are on
alert to deal with the aftermath of the shocking referendum results. Even
though it had low probability by their own estimates all central banks build a
Plan B in case Brexit became a reality. The Bank of Japan has already emailed
plans for extending swap lines to provide liquidity and keep the JPY from
rising as investors covet the currency as a safe haven. Today’s Brexit vote
sees the yen back to its 2013 levels – Abenomics has been wiped out in less
than six-months.
The
Bank of England (BoE) and the European Central Bank (ECB) are likely to
increase their easing efforts which could complicate the plans of the U.S.
Federal Reserve to raise rates later this year. Already today the CME FedWatch
tool based on the Fed Futures prices points to a possible rate cut as more
likely than a rate hike until December. The final week of June will bring few
economic indicators with the gross domestic products of the U.S. and the U.K.
on the schedule. Political and economic uncertainty will dominate markets as
the British pound is trading at 30 year lows following the referendum results.
The
GBP/USD lost 8.157 percent in the last 24 hours. The currency pair is trading
at 1.3597 after touching a daily high of 1.5019 only to drop to 1.3229 at the
height of Brexit panic. The British pound fell as much as 10 percent after
results started coming in around the United Kingdom. The world’s fifth largest
economy held a referendum to decide the fate of its long standing relationship
with Europe and the results will have a lasting effect even if there is a way
to stop the breakaway.
The
EUR/USD lost 1.687 percent in the last 24 hours. The pair is trading at 1.1161
as the USD has appreciated thanks to safe haven flows. The EUR has not lost
much ground despite the implications that its market could be missing such a
large economy, but it is logical that the brunt of the depreciation will be on
the GBP. The USD is once again riding a wave of monetary policy divergence as
it is anticipated the BoE, BoJ and ECB will be forced to deliver conventional
and unconventional policy measures to boost growth and avoid falling into a
recession.
The
USD/JPY has lost 3.35 percent in the last 24 hours. The pair is trading at
102.20 after breaking under 100 earlier in the session due to the aftermath of
the referendum results in the U.K. The Bank of Japan (BOJ) has been proactively
sending communications on their plans to contain the appreciation of the yen.
Governor Haruhiko Kuroda said that the central bank is ready to provide
liquidity via swap operations to achieve market stability. The JPY is seen as a
safe haven and a way to hedge against the volatility of the GBP and European
moves after the Brexit results. The currency is back to 2013 levels which could
mean all the work of Kuroda and quantitive easing funds would have been for
naught.
The
economic calendar will bring little answers to the main question on investors
minds, for that they will have to seek guidance from political and monetary
policy leaders in a world where the unknowns far outnumber the known facts.
Finance Minister from around the globe will make comments during the weekend
which could move makes when trading week starts at the Asian session open.
Spanish votes will vote on the rerun of general elections with polls showing a
divided electorate.
The
ECB will hosts its Forum on Central Banking in Portugal on Monday, June 27. The
three day conference includes ECB President Mario Draghi, Fed Chair Janet
Yellen and BoE Governor Mark Carney. Unconventional monetary policy tools and
the fallout of Brexit are sure to be topics of discussion.
The
U.S. will release the final gross domestic product (GDP) for the first quarter.
A slight improvement over an earlier estimate is expected with the U.S.
anticipated to show a 1.0 percent growth in Q1. The U.K. will announce its first
quarter GDP and current account on Thursday, June 30. Manufacturing purchasing
manager indices will be published in the U.K. and the U.S. on Friday, July 1.
The week of July 4 to July 10 promises to bring back fundamentals back to the
fore front after a week where traders will be going on limited information and
central bank and politician’s rhetoric.
15-06-2016
Prime Minister Malcolm Turnbull says possible Brexit another reason to vote for Coalition
Prime Minister Malcolm Turnbull has issued a warning about the impact a Brexit would have on global sharemarkets, arguing the uncertainty about Britain's place in the European Union (EU) is a further reason to return the Coalition to power.
US markets have fallen for a fourth consecutive day as investors grow more concerned about the possibility Britain could vote to leave the EU in a referendum on June 23.
While Mr Turnbull was reticent about issuing any sort of directive on how UK voters should cast their ballot, he did express concern about the ripples the decision would cause across the globe.
"The British people will of course make their own decision, and it's a matter for them," Mr Turnbull said.
"But it is possible that Britain will vote to leave the EU.
"That will cause a degree of uncertainty in global markets, and the anticipation of that is already doing that."
Mr Turnbull said it was a further reminder why Australians needed to vote for the Coalition when they headed to the polls on July 2.
"It is a reminder that we need to ensure that we have strong, committed, capable economic leadership, a stable government with a clear national economic plan," he said.
"There are many things that occur in the global economy over which we have no control, there are many shocks that can occur.
"The way we proof ourselves best against that, to be able to deal with them best, is to have a clear national economic plan, to be supporting enterprise, supporting resilience, supporting jobs and growth here."
Brexit campaigner Boris Johnson has stated a decision by the UK to leave the EU would bring Australia and Britain closer together.
The former Mayor of London and now Conservative MP said it could allow more Australians to get UK visas and boost trade ties between the countries.
5-04-2016
EU referendum: Bank of England ready to pump billions into financial system to counter turmoil of Brexit
The Bank of England is on standby to pump billions of pounds into the financial system in case of market turmoil following a vote to leave the European Union in June.
The plans emerged ahead of an appearance in the Commons by Mark Carney, the Bank’s Governor, where he was questioned by MPs on the potential impact of Brexit on the money markets. The Bank could offer cash to the major banks around the time of the referendum to ensure money continues to flow through the system.
Similar emergency steps were taken during the financial crisis in 2008 and privately considered – but not taken – during the Scottish independence referendum in 2014.
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29-11-2011
China is looking to buy EU factories and railways instead of wobbly government bonds as prices fall amid the eurozone crisis.
Minister of commerce Chen Deming articulated the strategy at a business congress in China on Monday (28 November)."Next year, we will send a delegation for promoting trade and investment to the European countries ... Some European countries are facing a debt crisis and hope to convert their assets to cash and would like foreign capital to acquire their enterprises. We will be closely watching and pushing forward the process," he said."Traditionally, Chinese involvement in overseas infrastructure projects has been as a contractor only. Now, Chinese investors also see a need to invest in, develop and operate projects," he explained.Lou praised the UK as "one of the most open economies in the world" and mentioned involvement in a new UK north-south railway project in the context of political hostility to China in some countries.
Chinese port operator Cosco last year bought a 35-year lease for two container terminals in debt-struck Greece. But crisis-hit Iceland last week blocked the sale of a large farm to Chinese businessman Huang Nubo on national security grounds.
Speaking to the Sina Finance news agency, he hit out at what he called European "prejudice ... like the view that state-owned enterprises represent your country, that whatever your background is you're a military business."
"You can come and buy a house, and you can emigrate here and bring your riches with you, or you can buy my luxury goods, but if you want to touch my natural resources, then I'm sorry, I won't let you."
The EU in recent weeks had tried to interest China in buying weak European bonds instead through a special purpose investment vehicle.
For their part, Chinese analysts predict the spending spree will not begin until prices hit rock bottom.
"The euro zone crisis has not entirely played out and asset prices are very volatile. They haven't found their floor ... Europe is not a resources player, but its manufacturers are what would most interest us, with their market, their technology, and their strong experience,"
25 - 07 -2010
Yen’s Gains May Hurt Japan Growth, Policy Makers Say
Japanese policy makers for a third straight day signaled that a stronger yen poses a danger to growth in the world’s second-largest economy, spurring speculation they will take steps to counter that risk.
An abrupt drop in stock prices or an appreciation in the yen could hurt the economy” because Japan relies on overseas demand, National Strategy Minister satosh Arai said in Tokyo. Cabinet Office official Keisuke tsumura said the yen, which has risen 9 percent since early May, has been “a bit too high.”
Executives of companies from sony corp one of the world’s three biggest consumer electronics firms, to Nippon Yusen K.K., the nation’s No. 1 shipping line, said the yen shouldn’t appreciate further. Macquarie Research said Japan’s authorities are “close” to intervening in the currency market, and the central bank may pump additional funds into the financial system.“The yen has strengthened to a point where government officials can no longer ignore it,” said masafunmi yamamoto, chief currency strategist at Barclays Plc in Tokyo who used to work as a currency trader at the Bank of Japan. “When the Japanese currency reaches 85, we are likely to see verbal intervention by the officials. If that doesn’t work and the yen appreciates rapidly to 80 or below, chances become high for actual intervention.”
EURO'S WORST YET TO COME 06 - 07 -2010
Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to $1.13 in the third quarter, $1.08 by year-end and may near $1 in 2011 before recovering. Osborne, whose predictions were within 4.1 percent of the mark on average, according to data compiled by Bloomberg, was echoed by the nine following most-accurate forecasters in anticipating a lower euro in the next two quarters.
The euro weakened 15 percent against the dollar in the first half on speculation record budget deficits from Ireland to Portugal and Greece will force governments to cut spending and reduce economic growth. Bond yields among the euro-area’s so- called peripheral nations surged relative to German bonds even as European Union leaders crafted an almost $1 trillion aid package to avoid sovereign defaults.
18-06-2010
The euro headed for its biggest weekly advance against the dollar in a year as stock markets rose amid signs Europe is emerging from its debt crisis.
The 16-nation currency touched a three-week high versus the greenback as increased demand at a Spanish bond auction yesterday spurred optimism that nations in the region can raise sufficient funds. The pound headed for its second weekly gain versus the dollar after a report showed Britain posted a smaller fiscal deficit in May than economists predicted.
The euro gained versus 13 of its 16 most-traded counterparts this week after Spain sold 3 billion euros ($3.71 billion) of 10-year debt yesterday at an average yield of 4.864 percent, less than the 5.04 percent yield on the benchmark before the sale. The MSCI World Index of global stocks rose 0.3 percent today, extending its run to nine consecutive days, the longest streak since July, 2009.
Spain also sold 30-year debt at 5.908 percent, with a so- called bid-to-cover ratio of 2.45, higher than the 1.38 at the previous sale on March 18.
“The Spanish bond auction was better than expected, providing a boost to risk appetite and allowing the euro-dollar to break the $1.2350 resistance,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas, wrote in a research note today, referring to a level at which sell orders may be clustered.
European Union leaders yesterday agreed to disclose how banks perform on stress tests, seeking to show investors the financial system can withstand financial shocks. The euro will fall back to $1.20 within a “few weeks,
17-06-2010
World Bank President Robert Zoellick said yesterday there are “challenges” ahead in Europe even if the rescue packages put together by authorities have “bought time.”
EU leaders will meet in Brussels to discuss the region’s economies and the so-called stability and growth pact. The Bank of Spain plans to make the findings of its stress tests public to provide markets with full knowledge of the state of the country’s banking system, Miguel Angel Fernandez Ordonez, the central bank governor, said yesterday in a speech.
“Investors continue to express concerns over Spain, especially whether the government can commit enough funds to ring-fence the banking sector,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. The euro is likely to weaken to $1.15 in three months, he said.Greece’s sovereign debt woes focused attention on Spain’s public finances and the cost of supporting the nation’s banks. Spain’s central bank has seized two lenders since the start of the crisis.
16-06-2010
CRUDE OIL DOWN TO $73.63 ON US DOLLAR STRENGTH
Oil prices are declining from near-one-month highs due to a USD rebound, decreasing the popularity of the black gold as a hedge against inflation. July Crude is at $76.63 a barrel, down 39 cents from US Open. Risk appetite has increased as worries of sovereign debt crises in the Eurozone are just started to ease with the release of widely positive industrial production data yesterday.
Additionally, President Obama addressed the BP oil spill from the Oval Office Tuesday night, hinting at the oil company taking further financial responsibility for the crisis and pushing green energy investments, although without giving concrete direction. Fitch cut BP's long term credit ratings to BBB from AA on risk of greater future financial obligations. The company's stock has dropped almost 50% since a BP-operated rig exploded and sank April 20 off the Gulf coast.
Crude broke a key resistance yesterday, the 200-day moving average of $76.94 a barrel, for the first time in a month. Oil had benefited from increasing demand, as seen in the decline in U.S. oil inventories by 1.9 billion barrels in the weeks ended May 28 and June 4 according to the EIA.
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