Yesterday’s fall in the Nikkei and strengthening of the Yen on the back of BoJ inaction and heightened concerns around the outcome of the UK EU referendum set the tone to the early part of the overnight session. Equities, risk sensitive currencies and the Pound were sold while core global yields and safe haven currencies were bought. Losses were then mitigated in the US session with the rebound in risk appetite coinciding with news that campaigning ahead of the UK EU referendum was halted following the murder of a UK labour MP. The recovery in equities and other risk assets occurred amid a gradual easing in bookmakers odds for the UK leaving the EU.

US equities pared early losses aided by gains in telecommunications and utilities shares. Main US equity indices ended the day with gains between 0.2% and 0.55% while all major European equity indices closed down between 0.27% and 1%.

The USD is stronger across all G10 currencies barring the JPY which has benefited from its preeminent safe haven attribute. Moves in JPY are also reflecting a dose of market disappointment from the BoJ decision to stand pat once again. Although the GBP is practically unchanged against the USD, it traded in a range of two big figures overnight. The Pound remains at the mercy of Brexit polls and Brexit odds by bookmakers.

Meanwhile, at 0.7367 the AUD/USD is basically unchanged relative to Sydney’s closing level. Yesterday the AUD/USD reached an intraday high of 0.7440 immediately after the employment data was released. The unchanged 5.7% unemployment rate and the 18k jobs created in May were the catalyst for the move higher. But details on the report were disappointing, no full time jobs were created in May and we had downward revision in April (-9.3k to 18.2k). As a result the AUD/USD was eventually dragged down to a 73 handle, however Ivan Colhoun, our Chief economist, noted that we need to be careful “in placing too much weight on short-term trends in this data, which continue to be volatile and potentially unreliable”.

Looking at other markets, core global yields ended a little bit lower in Europe and marginally higher in the US. 10y Bunds closed at -0.025% (-1.4bps) and 10y UST are currently at 1.577%, 2.2bps higher relative to Sydney’s closing level.

In commodities, oil prices have continued to decline with both WTI and Brent down 3.0%.Iron ore has remained steady at $50.7, copper lost 1.8% and gold lost 0.6%.

Given the current fragile risk sentiment, markets are paying very little attention to data releases at the moment. That said we did have important US data releases overnight which were mostly in line with expectations. US May CPI rose 0.2% (0.3% exp) and the core measure printed at 0.2% in line with consensus. This was the fourth solid gain in core CPI over the past five months.

The US Philly Fed index rose to 4.7 in June from -1.8 in May. However, orders, shipments, inventories and the workweek all fell, so this is not the clear signal of better manufacturing conditions that the headline seems to suggest.

US Jobless claims rose to 277k from 264k (unrevised), above the 270k consensus, albeit by about the same amount that they were lower than expected last week. Finally, the NAHB index in the homebuilders’ survey rose to 60 in early June from 58 in May.

Coming Up

After a fairly hectic few days of data releases and central bank announcements, we have a quiet end to the week with no domestic data releases and only second tier data releases in offshore markets.

This morning New Zealand gets its business manufacturing PMI for May and consumer confidence readings for June. Then, we have an empty calendar until Europe opens with the Euro zone April current account due out along with the labour cost data for Q1.On the other side of the Atlantic, the US gets housing starts and building permits data and Canada releases its May CPI print.

Overnight

On global stock markets, the S&P 500 was +0.11%. Bond markets saw US 10-years +0.68bp to 1.56%. In commodities, Brent crude oil -3.23% to $47.05, gold-0.6% to $1,284, iron ore +0.1% to $50.70. AUD is at 0.7365 and the range since yesterday 5pm Sydney time is 0.7292 to 0.7377.

Good luck,

For full analysis, download report:

•  Markets Today: 17 June 2016 (PDF, 104kb)

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