Markets Today: Thursday

Markets being what they are, last Thursday’s tragic news of the slaying of UK MP Jo Cox, campaigning on behalf of the ‘remain’ side in front of Thursday’s EU referendum, elicited a strong positive response in all things Sterling, as well as supporting risk sentiment more broadly.

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Markets being what they are, last Thursday’s tragic news of the slaying of UK MP Jo Cox, campaigning on behalf of the ‘remain’ side in front of Thursday’s EU referendum, elicited a strong positive response in all things Sterling, as well as supporting risk sentiment more broadly. This was on the view that the tragedy could have a material influence in swaying opinion amongst UK voters back in favour of staying in the EU.

This snap judgment by markets received some validation in a ComRes poll for the Sunday Mirror published on Saturday night, and which was being conducted at precisely the time news of Jo Cox’s murder hit the news headlines. Before the news, 45% of those polled said they would be ‘delighted’ if the UK voted to leaver the EU. This dropped to 38% of respondents polled after the news, while the Remain camp got a nine point boost from those saying they would be ‘delighted’ if Britain stayed.  The poll findings will resonate today, likely seeing further advances for Sterling, some renewed weakening in the JPY and a firmer AUD.

Offshore markets ended the week quietly, US stocks meandering below Thursday’s strong closes led by weakness in health care and tech. sector stocks, bond yields recouping a little of their mid-week decline (10yr Bund yields back positive) and the US dollar edging down (helping oil higher and with that NOK and CAD). Dollar weakness was led by further gains for Sterling. Betfair referendum probabilities edged to 65%/35% in favour of remain, from more like 60%/40% at mid-week. EUR/USD also benefited modestly on the coattails of GBP.

So in FX, GBP/USD +1.9% to 1.4472; EUR/USD +0.46% to 1.1277; USD/JPY +0.4% to 104.7; AUD/USD +1.0% to 0.7435; NZD +0.4% to 0.7075:  The narrow DXY ended Friday -0.38% at 94.2, the broader BBDXY -0.44% and the ADXY +0.07%.

In stocks, the S&P500 finished 0.33% lower at 2071.22 (-1.2% on the week), the Dow -0.33% and the NASDAQ -0.92%.  Earlier the FTSE 100 gained 1.2%, the Eurostoxx 50 gained 0.85% and the Dax 0.85%.

In US rates, 10 year Treasuries edged up from 1.58% to 1.609% (and reversing a mid-session wobble lower) to be 3.2bps lower on the week. 2s +0.8bp to 0.695% (-3.4bps on the week). 10yr Bunds reversed back into positive yields territory, +4.3bps to 0.019%.  Commodities drew some support from the softer dollar with WTI crude +$1.80 to $47.98 (a fall of $1.09 on the week) and Brent +$2.0 to $49.17 (-$1.37 on the week). The China 62% fines iron ore import price added 30 cents to $51.09 (-$1.51 on the week) and the LMEX index +0.41%. Gold lost $3.60 to $1,292.5 but was $19 higher on the week.

As for economic data, China May property prices, published on Saturday, showed annual inflation across the 70 cities tracked by the NBS +6.9% in May up from 6.2% according to Reuters calculations. 50 of the 70 major cities reported prices gain last month versus 46 in April. An NBS spokesman said that the average (price) growth of new homes in first-tier cities started to narrow, while it continued to widen in second and third tier cities (Reuters reports).

On Friday, US May housing starts -0.3% against -1.9% expected and April was revised down to +4.9% from +6.6%. Building permits +0.7% below the 1.3% expected but April was revised up to 4.9% from 3.6%.

St. Louis Fed President James Bullard on Friday issued a statement revealing himself to be responsible for the horizontal (0.625%) dot point in Wednesday’s FOMC SEP.   He said it follows the adoption by the bank’s economist of a new approach to analysing the US in which they no longer try to predict what the long-term outlook is, preferring to set policy on the assumption the economy will remain in its current state

Coming Up

This week is of course all about Thursday’s  UK referendum  and where the results are likely to start trickling in from about 9:30 AEST on Friday with the outcome expected to be know sometime during the Australian afternoon.  See our What to Watch publication from Friday for a ready reckoner on Friday’s expected timeline of events, and what happens next in the event of a vote for ‘Brexit’ (if you are not receiving this but would like to, please email us)

Internationally and ahead of Thursday, Fed Chair Yellen testifies to the Senate banking Committee on Tuesday, but it’s doubtful we’ll learn more than we did last Wednesday. Here, it’s RBA Board minutes while the RBA’s Debelle, Heath and Ellis are all due to pop up during the week.

Overnight

On global stock markets, the S&P 500 was -0.01%. Bond markets saw US 10-years +2.90bp to 1.61%. In commodities, Brent crude oil +1.30% to $49.25, gold+0.7% to $1,300, iron ore +0.8% to $51.05. AUD is at 0.7435 and the range since Friday 5pm Sydney time is 0.7379 to 0.7435

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