Big Market Moves on Brexit Day

June 23, 2016

Polls have opened in the U.K. where voters are deciding whether to remain in the EU or leave.  Polls close at 10 PM local time.  Markets are positioned for a “remain” outcome.

  • The dollar rose 1.3% overnight against the yen but is down 1.2% against sterling, 1.0% relative to the loonie, 0.9% versus the New Zealand and Australian dollars, 0.8% vis-a-vis the euro and 0.3% relative to the Swissie.
  • Gold slid 0.6% to $1,262.5 per ounce.  WTI crude oil has lost 1.1% to $48.85 per barrel.
  • In Europe, share prices have climbed 1.7% in Italy, 2.2% in Germany, France and Spain, 1.6% in Greece, 1.5% in the U.K. and 1.0% in Switzerland.
  • Japan’s Nikkei closed 1.1% higher.  Stocks rose 0.9% in India and 0.8% in New Zealand but are down 0.5% in China, Indonesia and Taiwan.
  • Ten-year sovereign debt yields climbed five basis points in the U.K. and 3 bps in Germany, and a rise in Treasuries is signaled in the futures market.

Preliminary purchasing managers surveys for June were reported for the eurozone, Germany, France and Japan.

  • From a 49-month low in May of 47.7, Japan’s manufacturing PMI ticked up 0.1 percentage point.  Employment grew at a 9-month low, and orders and production contracted significantly.
  • Euroland’s composite PMI dropped to a 17-month low of 52.8 depite a 1.1-point rise in manufacturing to a reading of 52.6, which was a 6-month high.  The services PMI fell 0.9 points to an 18-month low.  The data suggest that GDP expanded in 2Q at just half the 0.6% pace of 1Q.
  • France’s composite, manufacturing and services PMI were each below the 50 breakeven line for the first time this year.  The composite reading of 49.4 was at a 4-month low and accompanied by lessening business confidence.
  • The German composite PMI of 54.1 was a 2-month low and suggests GDP grew about 0.4% in 2Q.

The Filipino central bank did not change interest rates or its reserve requirement ratio.  Early this month when authorities shifted to a rate corridor by introducing an overnight deposit rate of 2.5% and an overnight lending rate of 3.5%, they also cut the repo rate by a full percentage point to 3.0%.

Norway’s central bank, Norges Bank, left its benchmark interest rate at 0.50% and released a statement with a clue that the rate may be cut in the second half of this year.  The rate had been cut by 25 basis points in March, 25 bps each last September and June and by a total of 175 basis points since December 2011.

Colombia’s central bank extended its interest rate tightening cycle with another 25-basis point hike to 7.5%.  The rate has been raised 300 basis points since late October 2015 in response to significantly higher-than-target inflation.

Bank of Japan Board member Kiuchi, who has consistently voted for less aggressive monetary stimulus, gave a speech urging that policy be reoriented with a higher priority on financial market stability than price stability.

In her reprised testimony to the House financial services committee, Fed Chair Yellen was drilled with questions complaining about Fed over-regulation of banks and said she opposes negative interest rates in the U.S..

Japan’s index of leading economic indicators in April was revised to 100.0 from 100.5 reported initially.  100 is still a 3-month high.  The trend in the index of coincident economic indicators is still “weakening”  according to officials.

Japanese stock and bond transactions last week generated a net JPY 1.247 trillion net capital outflow, which was much greater than the JPY 105 billion outflow in the prior week.

Italian industrial orders rose 1.0% in April after sinking 3.4% in March.  Orders were 11.3% below their year-earlier level.

Scheduled U.S. data to be released today are weekly jobless insurance claims, a preliminary manufacturing PMI compiled by Markit Economics, the Chicago Fed National Activity Index, new home sales and the Kansas City Fed manufacturing index.  Ukraine’s central bank is holding a policy meeting.

The Brexit verdict should be known by 2 AM Friday in New York.  Leader of the “leaves” Boris Johnson bears a striking physical resemblance to Donald Trump especially in profile, and each was born in New York City although 18 years apart.  A deficiency of the U.K. referendum is that a mere majority is required on a matter enormous impact and one affecting channels of fundamental decision-making.  The leave-or-stay question is analogous to a U.S. constitutional amendment and ought to meet a tougher that 50%+ vote.  The European Monetary Union only launched because of a razor-thin 50.8% to 49.2% margin of French approval in a referendum on September 20, 1992 that approved the Maastricht Treaty.  All nations were required to approve the treaty setting up a currency union, but very few submitted the matter to referendum.

Copyright 2016, Larry Greenberg.  All rights reserved.   No secondary distribution without express permission.

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