Morning Briefing – sterling jitters remain

<p>Assumptions are very risky things to have in a market like the one we’re currently experiencing.</p>

  • Assumptions are very risky things to have in a market like the one we’re currently experiencing. True, the tone of sterling has improved quite a bit during the last 15 hours or so, though it has remained highly volatile, and the basis to make anything more than a very short-term trading decision has simply not changed, from our point of view. For example, there doesn’t appear to be much let up in demand for short-term sterling protection: implied volatility of simple sterling/dollar options expiring next week has hit a fresh record high this morning.
  • Is the widely speculated change in sentiment reflected in polling results? It is not. Or perhaps, not yet. The last major poll—one for the Evening Standard newspaper was the one which showed a 53% / 47% split in favour of Brexit. It appears polling companies have delayed the release of their most recent surveys after the murder of MP Jo Cox in Birstall, West Yorkshire on Thursday.
  • The pound is bid, taking the euro down once again, and more sharply this time away from the 0.799 levels we’ve been watching this week, leaving the pair trading at 0.7882 at last look. Against the dollar, sterling is also looking much more assured, retaking 1.42 and 60-odd points more. Taking the sharp and rapid plunge last Friday as a de facto gap, current cable values are trading within that, so it will be interesting to see if sterling stabilizes here, or not.
  • Looking around the globe, there’s little doubt sentiment has received a fillip. Both major oil contracts are higher on the day, although Brent and US crude are set to post just their second and third week-on-week falls in 10 weeks respectively. Most major stock markets across Asia, including in Japan, China, Hong Kong, South Korea and Australia rose overnight, although performances varied widely.
  • The dollar index is currently soft, however it was just a few points away from posting a small gain for the week, at last look. That largely reflects the pretty spectacular move this week by the yen against the dollar which is still comfortably on the ¥104 handle albeit somewhat softer since Thursday. Japan’s currency has advanced 2.6% against the greenback this week.
  • The main economic readings outstanding for the week are Canadian inflation and US Housing Starts, both at 1.30 in London’s afternoon.

 

Please look out for our updates on the above market developments and others throughout the day.

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