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AM Bulletin: Markets rise for the second day ; back to pre-referendum levels, sterling still weak
30 Jun 2016
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29 Jun 2016
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28 Jun 2016
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27 Jun 2016
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24 Jun 2016
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24 Jun 2016
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23 Jun 2016
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23 Jun 2016
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22 Jun 2016
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22 Jun 2016
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21 Jun 2016
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21 Jun 2016
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21 Jun 2016
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20 Jun 2016
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20 Jun 2016
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17 Jun 2016
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17 Jun 2016
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17 Jun 2016
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17 Jun 2016
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16 Jun 2016
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16 Jun 2016
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15 Jun 2016
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15 Jun 2016
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14 Jun 2016
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14 Jun 2016
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13 Jun 2016
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10 Jun 2016
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10 Jun 2016
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09 Jun 2016
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09 Jun 2016
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08 Jun 2016
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08 Jun 2016
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07 Jun 2016
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06 Jun 2016
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06 Jun 2016
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03 Jun 2016
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03 Jun 2016
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02 Jun 2016
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This morning kicked off with a clutch of polls on the UK referendum. These all showed a lead for “leave” over “remain”. ICM had Leave on 48% and Remain on 43%. TNS put Leave on 43% with Remain on 41% while YouGov/GMB had Leave on 45% and Remain on 41%. It is perhaps the YouGov poll which is the biggest shock for the Remainers as this is the first time these pollsters have put Leave ahead. 

These follow on from three polls at the beginning of last week which also all put Leave ahead. According to Reuters, out of the eight most recently published polls, five had Leave ahead with two going for Remain and one tie. Overall, these results suggest that the Leave campaign is continuing to build momentum. 

The news led to a sharp sell-off in sterling overnight with cable down a cent in 30 minutes. This took it back towards a mild area of support around 1.4330.

   
060616
  
  
060616

   
  
Cable had been slipping since last summer. But the sell-off gathered pace in December which is when I believe Brexit fears began to get priced in. The sell-off culminated in the GBPUSD breaking below 1.4000 in February.
  
Over the last twenty years the GBPUSD has dropped below 1.4000 on only a few occasions: June 2001, January 2009, March 2009 and then over the last week of February this year. On each occasion it snapped back relatively quickly. However, that’s not to suggest it will do so if it drops back below there this time round.
   
I’m going to try and make more sense of the possible market reaction to the vote nearer the time. But I can’t help thinking that a trade on sterling over the referendum would be a complete punt. In the meantime we should expect more of the same with sterling being punished should “Leave” continue to push ahead in the polls. Obviously, if “Remain” begins to fight back then expect sterling to recover. 
  
From the charts there is currently some support around 1.4330 with a band of resistance between 1.4630/1.4700. But these levels can’t be relied on with such uncertainty ahead. Volatility in the options market has picked up sharply over the last two weeks which means that financial institutions are finding it very expensive to put hedges in place over the referendum. In the meantime, sterling traders also have to contend with the Fed flip-flopping over a summer rate hike. Friday’s dismal Non-Farm Payroll data should have put paid to any notions of monetary tightening next week. However, Fed members won’t want to rule out a summer move given their recent hawkish stance. Let’s see if Mrs Yellen dares to clarify the position later this afternoon. 


David: Friday’s dismal Non-Farm Payroll data should have put paid to any notions of monetary tightening next week.

 
 
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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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