Below trend growth to continue
Pink Floyd’s 1979 song featured on The Wall tells the story of a couple who have treated each other very badly yet are devastated at the prospect of their relationship ending. This seems somewhat appropriate with us now just 9 hours away from polling getting underway in the UK EU referendum.
Pink Floyd’s 1979 song featured on The Wall tells the story of a couple who have treated each other very badly yet are devastated at the prospect of their relationship ending. This seems somewhat appropriate with us now just 9 hours away from polling getting underway in the UK EU referendum. Also somewhat prophetic is the overnight news that Iceland, a country whose total population (330,000) is less than the number of migrants entering Britain last year alone (333,000) have just defeated EU stalwart Austria to tee-up a last 16 contest with England in Euro 2016. Now I’m not a betting man, but with Bloomberg’s updated referendum poll tracker showing Leave’ on 43% and ‘Remain on 41% (see our Chart of the Day) and the bookies offering $8 on Iceland beating England on Monday, I can feel a parlay coming on.
In overnight markets, unsurprisingly little to report. Fed chair Janet Yellen delivered the second of her two Congressional testimonies and by all accounts it was a much more feisty affair than Tuesday. Chairman of the House Financial services Committee Jeb Hensarling criticised the Fed’s payment of interest on excess reserves to banks in excess of the Fed Funds Rate, for the risk of losses being incurred on the Fed’s balance sheet, for regulation creating economic headwinds, as well as a lack of independence from the Obama administration noting a ‘revolving door’ between the White House, Treasury and Fed. Expect to hear much more on this theme from a certain Mr Trump as the US presidential election campaign gets underway proper. On the economy, Mrs Yellen didn’t deviate from Tuesday’s message of cautious optimism with respect to a pick-up in growth.
US equities are heading into the NY close showing minor losses, but the VIX has jumped by 2.7 points or some 15% to 21.2, symptomatic of a bit more last-minute insurance being taken out against the risk of ‘Brexit’. Treasury yields have given back a little of their earlier gains with 10s back below 1.7% (1.687%) though European yields close a touch higher. In currencies, a little surprising given the move higher in the VIX to see the AUD at the top of the G10 leader board and sitting just back on 0.75 handle, closely followed by the NZD which posted another YTD high (0.7188). The CAD is the only currency weaker against the US dollar, and where lower oil prices are presumably to blame. Hard commodity prices are mostly higher and in keeping with a softer US dollar.
It’s been a long week in the lead up to the UK EU referendum (this scribe spent Monday and Tuesday in bed sick and it still seems like a long week). Polling opens at 7:00 UK time (4pm AEST). There should be nothing to see at least until this time tomorrow when polls close and we may get exit polls of sorts, in which respect note that those commissioning private polls will not be allowed to make the results publicly known until after polling booths close. This probably won’t stop rumours flying around much earlier in the UK day about what private polling may be revealing.
Heading into polling day, latest referendum ‘poll of polls’ continue to suggest the two sides running almost neck and neck. We’d note though with ‘undecideds’ still in excess of 10%, the final result could well end up being much more decisive than this. In the 2014 Scottish referendum, most of the ‘undecideds’ turned out in favour of the status quo. Even though it looks as though much of the ‘risk of ‘Brexit’ has been priced out markets (e.g. the British Pound is now stronger than it was the day before the referendum date was announced) there remains plenty of scope for volatility on either outcome, albeit (very) much more on a Leave’ than ‘Remain’ outcome.
Data and events to be ticked off today, probably to little or no market reaction, include the RBAS’s Luci Ellis speaking at a conference on regulation (from 9:00AEST) and Guy Debelle at an event starting at 18:15 AEST this evening. Eurozone preliminary PMIs will be of some note this evening from 17:30 AEST and in the US we get initial claims, the Markit US manufacturing PMI and Kansas Fed manufacturing survey.
On global stock markets, the S&P 500 was -0.17%. Bond markets saw US 10-years -2.07bp to 1.69%. In commodities, Brent crude oil -1.62% to $49.8, gold-0.2% to $1,268, iron ore +2.8% to $52.29. AUD is at 0.7501 and the range since yesterday 5pm Sydney time is 0.7481 to 0.7522.
For full analysis, download report:
For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.