Incisive market commentary from David Morrison

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AM Bulletin: Markets rise for the second day ; back to pre-referendum levels, sterling still weak
30 Jun 2016
AM Bulletin: Confidence returns – but for how long?
29 Jun 2016
AM Bulletin: The onslaught continues – and we’re not just talking the football
28 Jun 2016
Weekly Bulletin: Investors rattled by Brexit vote
27 Jun 2016
PM Bulletin: Brexit - Referendum fallout
24 Jun 2016
AM Bulletin: We’re out! And so is Cameron
24 Jun 2016
Video Update: #AskSpreadCo - EU referendum
23 Jun 2016
AM Bulletin: Markets on tenterhooks ahead of UK vote
23 Jun 2016
Spread Betting Tips
22 Jun 2016
AM Bulletin: Risk assets waft higher
22 Jun 2016
PM Bulletin:Referendum and Market Reaction
21 Jun 2016
PM Bulletin: Gold and the referendum
21 Jun 2016
AM Bulletin: Yellen testimony in focus
21 Jun 2016
PM Bulletin: Janet Yellen’s testimony
20 Jun 2016
Weekly Bulletin: It’s all about the referendum
20 Jun 2016
Market Info Update: EU Referendum Margin Changes - CFDs
17 Jun 2016
Market Info Update: EU Referendum Margin Changes - Spread Betting
17 Jun 2016
PM Bulletin: Forecasting the referendum result
17 Jun 2016
AM Bulletin: Central banks leave rates unchanged
17 Jun 2016
PM Bulletin: FOMC post-mortem
16 Jun 2016
AM Bulletin: Yen, precious metals soar post FOMC/BOJ
16 Jun 2016
PM Bulletin: FOMC look-ahead
15 Jun 2016
AM Bulletin: FOMC meeting ahead
15 Jun 2016
PM Bulletin: European equities slide
14 Jun 2016
AM Bulletin: Stocks down on oil, growth fears and UK referendum
14 Jun 2016
Weekly Bulletin: FOMC and BOJ meetings in focus
13 Jun 2016
PM Bulletin: Markets rattled by slide in bond yields
10 Jun 2016
AM Bulletin: European stock indices drift lower
10 Jun 2016
PM Bulletin: WTI at $50 – thoughts on US production
09 Jun 2016
AM Bulletin: Precious metals soar
09 Jun 2016
PM Bulletin: S&P closes in on all-time high
08 Jun 2016
AM Bulletin: Investors in limbo ahead of Fed and UK vote
08 Jun 2016
PM Bulletin: Yellen and the jobs data
07 Jun 2016
PM Bulletin: Fresh polls send sterling lower
06 Jun 2016
Weekly Bulletin: Rate hike? What rate hike?
06 Jun 2016
PM Bulletin: A dismal Non-Farm Payroll number
03 Jun 2016
AM Bulletin: Non-Farm Payroll Friday
03 Jun 2016
PM Bulletin: Non-Farm Payrolls look-ahead
02 Jun 2016
AM Bulletin: OPEC, ECB, key data releases and central bank speakers
02 Jun 2016
PM Bulletin: OPEC and the oil price
01 Jun 2016
AM Bulletin: Manufacturing PMIs in focus
01 Jun 2016
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Indices Update

Well, the markets really got this one wrong. Around 3:00 am this morning it was apparent that the majority of UK voters wanted out of the EU. Asian Pacific indices had been slipping since soon after the polls closed as did grey markets on the major Europeans. By 3:00 am the FTSE100 was down around 500 points or 8%. Sterling also fell sharply and was down around 10% by 5:00 am this morning. So far so bad, and we’ll really only know if this is the worst of it or if there’s more to come once trading gets fully underway. The result was completely unexpected as far as the markets were concerned, and the punters. In fact, the polls had it just about right. It was too close to call going in, with a 3% margin of error.

Soon after the open the FTSE was bouncing back quite strongly, but still off around 400 points. Cable was holding up remarkably well all things considered. While it’s true (as the BBC kept on flapping) that the GBPUSD hit its lowest level since the mid-1980s, it didn’t come close to breaking 1.3000, and for the record, cable got down to 1.0500 in the bad old days. I probably shouldn’t say this for fear of jinxing it, but it could have been a lot worse. Bear in mind, the GBPUSD was trading just above 1.4000 just over a week ago.

David Cameron said he would be stepping down as Prime Minister and expected to have been replaced by the time of the Conservative Party conference in October.

Later in the morning the Bank of England Governor Mark Carney said the Bank would not hesitate to take measures and stands ready to supply liquidity as required.

European and US indices flew higher yesterday ahead of the referendum. This followed a couple of polls which showed that “Remain” had gone into the day with a small lead. On top of this at around 10:30 yesterday betting exchange Betfair announced that the implied probability of Brexit according to the flow of money they were seeing had shifted from 22.7% - 17.2%. All in all, the bookies (or rather the punters at the bookies) and the financial markets appeared to have no doubts that there would be a majority of voters backing “Remain.

However, this really appeared to underestimate just how evenly split the vote was as far as the opinion polls were concerned. These showed that the result was just too close to call, and well within a standard 3% margin of error. Not only that, but there were something like 10% of potential voters who said they were undecided and still likely to vote.

It was a measure of market nervousness that trading volumes were thin on just about everything ahead of the result. Yesterday morning’s moves really felt like a low-volume melt-up. Traders were wary of holding anything overnight. While the market was following the punters and betting on a vote to “stay”, there were concerns that the risk of a “Leave” vote had been understated. The polls were just too close to call for this level of complacency.


As trading got underway there were some notable losers. The banking sector opened sharply lower with Royal Bank of Scotland, Lloyds and Barclays all down around 25%. However, losses for HSBC were more modest with the bank down around 5%. Insurers such as Aviva and Legal & General also got hit hard. Real estate (British Land, Land securities) fell around 15% while retailers Next and Marks & Spencer were also slammed. There were a few winners including British American Tobacco and Rexam.

Commodities Update

Crude oil was down around 4% soon after the UK open. This was a straightforward risk-off move following the UK’s vote to leave the EU. However, investors were also taking the view that we could see lower growth across the West as the UK and EU cut ties. The US dollar rallied sharply overnight as investors rushed for the safe-haven of the greenback and this put additional pressure on oil.

However, it’s worth noting that neither WTI nor Brent broke below the lows hit just over a week ago when the “Leave” campaign had a substantial lead in the polls. Consequently, crude has simply done a round-trip and is now back where it started. Given this, and also considering that the financial markets are so far responding to the surprise result with remarkable calm, it shouldn’t be long before traders once again focus on supply/demand fundamentals.

As expected, precious metals soared following the unexpected victory for the “Leave” campaign in the UK referendum. Investors rushed to the safe havens of gold and silver. This was despite a big rally in the US dollar as investors sought out every available safe haven.  Gold flew above $1,350 to hit its highest level in over two years. Silver soared above $18 per ounce and traded at its best levels since January 2015. However, soon after the European open both metals had pulled back from their highs. It could be that they will come off further as it becomes apparent that the expected market carnage just hasn’t materialised. However, it’s still early days. It’s worth remembering that the UK’s decision will put considerable strain on the European Union. The referendum decision also makes it much more likely that central banks will keep monetary policy loose for longer. This should ultimately offer further support for the two precious metals.

Forex Update

As expected, the biggest reaction to the surprise referendum result was the move in sterling. Cable had topped 1.5000 late last night as investors increasingly came to the conclusion that a vote to “Remain” was in the bag. Why this was so I have just no idea. The opinion polls were effectively saving the result was too close to call with a 3% margin of error. So once it became clear that the “Remain” vote just wasn’t as strong as expected, even on a high turnout, sterling slumped. However, the sell-off wasn’t anything near as bad as many analysts (me included) had feared. Cable bottomed out around 1.3200 and at the time of writing is hovering around 1.3800. Bear in mind that just over a week ago it was trading a touch above 1.4000.

There were other big currency moves overnight. The US dollar was the biggest beneficiary of the “safe haven” play. The Dollar Index hit its highest level since March this year while the EURUSD fell towards 1.0900 but has since recovered. But the other big “safe haven” in FX terms is the Japanese yen. This soared overnight and the USDJPY crashed through 100.00 to hit a low just under 99.00. The yen has pulled back since and the USDJPY is currently above 102.00. But that move will have had hearts racing over at the Bank of Japan who are desperate to keep a lid on the yen.

Upcoming events

Today’s significant data releases and events include German Ifo Business Climate, Italian Retail Sales, Euro zone Long Term Refinancing Option and UK BBA Mortgage Approvals. From the US we have Durable Goods Orders, Consumer Sentiment and Inflation Expectations.

On Sunday we have Spanish Parliamentary Elections.


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Posted by David Morrison

Category: AM Bulletin

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