Whether it’s a near to end-quarter rebalancing or just some short-term perceived value after the knee-jerk post-Brexit sell off, risk appetite had something of a positive session overnight with equities and top-tier bond yields higher.  The Eurostoxx 600 index rose 2.57%, the FTSE by 2.64%, and the S&P 500 +1.78%.  Oil and base metals rose; gold eased.  As for currencies, Sterling and the Euro had a more stable-to-sideways session after more jitters during the Asia session yesterday given the still wide open expanse of uncertainty that lies ahead after last Thursday’s referendum.  The AUD/USD has also been trapped in recent ranges amid the overnight hiatus in the post-Brexit market turmoil, trading at just below 0.739 in early Asia trade.

The ascent of the USD (and the Japanese yen) has been cut short for a session, the Bloomberg spot DXY index moving sideways and trading within its range established earlier in the week, still up to 2% higher than pre-Brexit levels.  We also note that while US Treasury yields rose somewhat (2s up 1½ bps and 10s by 2½, as did German bunds by 0.4 and UK gilts by 2.6 bps), peripheral European bond yields actually lurched lower, a sign perhaps of further economic uncertainty for the wider Euro-zone.

Also, potentially dampening the mood, very late in the US session, there were two explosions at Istanbul’s main airport, reportedly with 10 killed.

Meanwhile, UK Prime Minister David Cameron fronted to the EU leaders Summit in Brussels having only renegotiated four months ago what he thought was a better deal that would set up the UK’s relationship nicely for the period ahead, but now with the unexpected shock results of the referendum in his back pocket.  From the reports there was an understandable mix of political emotions, some leaders pressuring UK to “get on with it” and get the ball rolling.  And to add a little more to the sombre atmosphere, ECB President Draghi reportedly told the leaders that the Eurozone’s growth would be lower by a cumulative 0.5%.

But of course, the UK will not invoke Article 50 you’d think before a new head of the Conservative Party is installed in early September.  And so there will be at least another two months on this timetable before the UK takes its next step before negotiations start with the EU.

There are still so many uncertainties with the political leadership vacuum within the UK itself and not just the UK’s relationship with Europe.  The uncertainty window remains wide open.

Data released overnight was likely to have at most only a passing effect on market pricing at the most.  US Q1 GDP was revised up a little to 1.1% from 0.8% while the Conference Board’s Consumer Confidence survey for June was more upbeat (lifting back up to 98 from 92.4) with the jobs plentiful index little changed; it certainly has not signalled job market worsening in recent months.

Coming Up

Very quiet for local releases with only the AU HIA New Home Sales report for May at 11.00 AEST after NZ publishes revisions to its Household Labour Force Survey using a better definition of “actively seek work”.  Our BNZ colleagues expect this change to result in a lower NZ unemployment rate from a lower participation rate.

Tonight, it’s still the focus on day 2 of the EU Leaders with Cameron apparently absent from this day.  Tonight’s US personal income, spending and PCE deflators report and Fed Chair Yellen’s participation in a panel at this week’s ECB conference in Sintra, Portugal might draw a little interest, especially if Yellen has anything to say publically about the Brexit.  May US personal spending will provide a meatier estimate of consumer spending and what it means for Q2 GDP using the Atlanta Fed’s GDPNow estimate that currently sits at 2.6%.

Overnight

On global stock markets, the S&P 500 was +1.73%. Bond markets saw US 10-years +1.85bp to 1.46%. In commodities, Brent crude oil +2.99% to $48.57, gold-0.7% to $1,316, iron ore -0.4% to $53.65. AUD is at 0.7386 and the range since yesterday 5pm Sydney time is 0.7344 to 0.7414.

For full analysis, download report:

• Markets Today: 29 June 2016 (PDF, 1MB)

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