• AM Bulletin: The onslaught continues – and we’re not just talking the football

    Indices Update

    The FTSE 100 slid 2.6% to 5982 by close wiping off a total of GBP100 billion across the index in last two trading sessions. The carnage, however, did not stop there - the FTSE 250 lost 7%, over 1100 points, in Monday’s trading session;  a total drop of 14.2% since Friday. The UK’s counter parts in the now distant European continent felt a modest rebound on open, but were soon dragged down in sympathy and on uncertainty.

    Early on in the trading session George Osborne made attempts to sooth the market; insisting that the UK economy is in a strong position and reiterated the Premier’s comments concerning Article 50 – that it need not be triggered until the autumn. In addition, Angela Merkel ruled out any informal talks with the UK unless Article 50 is officially triggered. However, to put all traders’ minds at rest Boris Johnson offered comforting words that the ‘markets are stable’ – the comment arrived as RBS and Barclays were suspended due to their massive drop in price.

    Throughout the trading session, analysts warned that the UK may enter a recession as earlier as the second half of the year, some suggested towards the end of the year. These comments arrived in parallel with comments that the market was pricing in a rate cut - giving a 50% chance of an interest rate cut in July, a 65% chance of a cut by August, and an 80% chance of a cut by the end of the year.

    Without any surprise Wall Street opened lower; the Dow and S&P 500 their broke 200 day MA intraday and this held below the close. The Dow during its session was down 337 but eventually closed down 260 points. The S&P 500 found some resistance at 2001, down 1.81%.

    After the close of the UK’s trading session, ratings agencies S&P and Fitch downgraded the UK to AA from AAA.  A rating downgrade can affect how much it costs governments to borrow money in the international financial markets.

    Equities

    Unsurprisingly there were a number of serious casualties across the market; Easyjet warned that the Brexit decision will hit sales – loosing 24% on the day. Equally, Foxtons took a beating of 25% - suggesting that the outcome will depress the London property market.

    Banking stocks continued to take a real thumping; Barclays fell more than 17% and RBS plummeted 26%, both banks had their trading halted.  Lloyds fell 10 percent by 4pm, while challenger banks Virgin Money, OneSavings Bank Plc and Shawbrook Group all plunged more than 25 percent.

    Commodities Update

    Gold continued to extend its gains as investors took advantage of its ‘safe-haven’ status. Goldman Sachs upped their forecast to $1300 on Friday, this was in the rear view mirror come Monday lunchtime.  SocGen and HSBC raised their forecasts to $1400. Holdings in exchange-traded funds backed by bullion soared $4.3 billion after the vote, the strongest gain in four years.

    Crude dropped almost 3%, Brent hit seven week lows due to Brexit concerns and a strengthening dollar. Both have lost almost 8% since the outcome of the vote. However, the oil has found some support in the shape of a looming strike in Norway – the affected fields account for 18% of Norway’s output. The strike isn’t enough to see oil rebound, but it has provided a floor to the price.

    Forex Update

    The pound found some comfort in the Chancellor’s comments yesterday morning, inching up to 1.3472 versus the dollar. However, this moment of comfort was short lived as Goldman Sachs and Bank of America slashed their near term forecasts. By midday, GBPUSD traded at 1.3224 but shortly after fell to a 31 year low of 1.3151. At the same time sterling fell below 1.20 versus the Euro for the first time in 2 years.

    Legendary investor George Soros made a statement that he did not bet against the pound, but rather took a long position as he was a supporter of the ‘remain’ camp. In the days running up to the vote he predicted that GBPUSD could fall to as low as 1.15.

    Overnight, the pound strengthened against both USD and EUR, now trading above 1.33.

    Upcoming events



    - 09:00 EUR ECB President Draghi Speaks in Sintra, Portugal

    - 09:00 EUR EU Parliament to Vote on Resolution on U.K. Referendum

    - 10:00 GBP BOE Holds Third Additional ITLR Operation Around EU Referendum

    - 13:30 USD Gross Domestic Product (Annualized) (1Q T)

    - 15:00 USD Consumer Confidence (JUN)

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