• AM Bulletin: When Carney speaks, the markets listen

    Indices Update

    European stocks saw a topsy-turvy day end in gains after Brexit-related worries looked to ease on equity investors and Governor Mark Carney stated the ‘Bank of England would probably loosen policy within months’. Market reaction indicated a presumption that a wave on QE was on the horizon, with Gilt yields falling into negative territory for the first time ever during late European trade. The BoE chief also stated the importance of an interest rate cut over the summer. Seeing as the current rate is a mere 0.5%, how low will they dare to go?

    The Stoxx Europe 600 seemed as though it could not decide between gains or losses, but eventually chose the former after the comments from Carney pushed the index up 0.9%. These gains can also be attributed to the ECB considering new rules on the types of bonds they could purchase via stimulus packages. The FTSE 100 found strength near the end of a day full of political change to end its session up 1.9%, proving resilient enough to shrug of the post-referendum losses and reach a new 10-month high. Next expected Prime Minister, Boris Johnson, decided to not put himself forward for the title whilst banks and insurance companies were the main fallers in the index.  The German Dax saw slight gains after following the FTSE in the final moments of trading hours. The German index was suffering from Deutsche Bank shares being under pressure but pushed up to 9679.5.

    This post-Brexit rally could not have come at a better time for US markets, which can now boast a third consecutive quarter of growth. The Dow found enough room to move 235.31 points, or 1.3% higher to end the first-half of the year at 17,929.99. Meanwhile, the S&P 500 gained 1.4% and the Nasdaq Composite 1.3% to settle at 2,098.86 and 4,842.67, respectively.

    Asian markets were fairly subdued in overnight trading, with the largest mover by far being the Hang Seng, up 1.8%. Rising oil prices gave most of these markets a boost, with many just edging out a gain. Japan’s Nikkei rose just 0.06%, while China’s Shanghai Composite narrowly lagged behind the pack, finishing 0.1% lower.

    Equities

    Shares in Deutsche Bank fell 4.1% as parts of the German bank failed the Federal Reserve’s stress test of financial institutions. The German giant had also failed this test a year ago leading the FED to comment “broad and substantial weaknesses across their capital planning processes, and insufficient progress these firms have made toward correcting those weaknesses and meeting supervisory expectations.”

    It seems there has been a significant setback in the race to bring automated driving to the roads as Tesla Motors comes under investigation from the US National Highway Traffic Safety Administration. The inquest was brought about in the wake of a fatal crash involving a Model S whilst in self-driving mode. After hours trading saw Tesla’s shares drop 3%.

    Cadbury’s owner Mondelez International were shocked to find their $23 billion offer for Hershey was rejected by the board of directors in a unanimous decision. Earlier on in the day the offer became public, with many noting Hershey shares trading almost $8 higher than the $107-a-share offer on the table.

    Commodities Update

    Oil markets had a tough American session yesterday as supply from Canada and Nigeria slowly resumes normality. Nigeria has been a target for pipeline attacks in recent months, significantly reducing output. Meanwhile the wildfires which left Canadian oil workers abandoning post at the beginning of May is finally becoming manageable. This combination put one word in traders’ minds; sell. Brent oil was down 98 cents while US crude dropped $1.18 by New York lunchtime, taking Brent back below the $50 mark. All was not lost for oil, though, as the Asian session brought both contracts back up to respectable levels, with Brent within touching distance of $50, trading at $49.96 this morning. US crude still has some ground to make up, but managed to push higher to $48.51.

    Spot Gold held its ground after the post-Brexit rally, making it the fifth consecutive weekly gain for the safe haven. By the end of the Asian session, Gold was up a further 0.6%, settling around $1,329 an ounce after reaching a high of $1,334.10. Gold’s more aggressive sibling, Silver, managed to break through the $19-mark, climbing 2.5% to settle at $19.15.

    Forex Update

    Carney’s speech successfully erased the gains from the previous two sessions, seeing the pound fall back down 0.89% against the dollar to end the day at 1.3306. The American session pushed the pound down the most, as markets ready themselves for more QE from the UK. Stirling was lower against most currencies, as the EURGBP pair rose back above the €0.83-mark, currently trading around 0.8370.

    This did not mean that the Euro strengthened across the board, as plenty of investors chose to flock to the dollar instead. EURUSD attempted a recover late on in the session, but could not prevent the pair closing lower at 1.1106.

    The dollar’s gains were noticeable across the board, with USDJPY finishing the day up above $103, which will be warmly welcomed by Japan who need a weaker Yen to boost exports. The pair is trading lower this morning, with some attributing this to investors buying Yen to finance the purchase of Japanese stock in the wake of a dollar recovery.

    Upcoming events

    No NFPs tomorrow (even though it’s the first Friday of the month) but still plenty to come in the first day of Q3. Manufacturing PMI is set to be released for several countries, including the UK, Germany and the US. There are also speeches from the ECB’s Nowotny followed by FOMC member Mester to listen in to.

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