Ken Odeluga June 15, 2016 3:23 PM
<p>1013 BST Finally the pound catches a bid. Even if order flow does not entirely dispel the notion of a short-covering bounce. More encouragingly, cable’s gains […]</p>
- Finally the pound catches a bid. Even if order flow does not entirely dispel the notion of a short-covering bounce. More encouragingly, cable’s gains have accelerated by some 55 points so far in Europe after as much as 80 pips in Asia. Finding more substantial reasons for the switch in sentiment, apart from bargain hunting and closed shorts, is more difficult though. Either way, sterling/dollar support kicked in at levels traders will be familiar with, near $1.4115, effective since March. Similarly, EUR/GBP turned around at those £0.799s we’ve been watching recently, looking for initial support close to £0.7923. The pound (and the UK) also got some reassuringly static jobs data this morning, with bonus that a 10 basis point fall in unemployment to 5% made it the best rate since November 2005.
- Muddying the picture further, we’ve also seen mild-to-moderate stock market bounces in China, Japan and Hong Kong, though not in Australia, nor South Korea. And there was yet another record low in Japanese government bond yields, which also tends to give the lie to notions that risk seeking is roaring back. Live quantitative models show that the yield compensation investors are demanding to hold equities (equity risk premium) in the biggest European and North American markets has marched some 50 basis points higher on average, with Germany deemed riskiest (at 7.76%). That’s telling me that a rapid return of outright risk-seeking sentiment does not seem favoured, eight days before a once-in-a-generation referendum.
- If markets really are in thrall to the pollsters right now, there’s no convincing reason for the bounce from that direction either. Pro-Brexit poll results keep coming; TNS’s on Tuesday evening the latest to show Leave ahead by a fair margin. Some additional large corporate names have stuck their heads above the parapet to encourage their employees to vote ‘In’. And investors may also like signs that UK Chancellor Osborne is about to ramp up the warnings of economic (semi) Armageddon on Wednesday. But judging from recent trading, markets are hingeing more on polls than anything else right now.
- Later, the main focus will switch to the Fed, which will announce policy at 7pm, London time, with a presser half an hour later. The best we can hope for in terms of new information might be updated forecasts, though that’s not a given at this meeting. The main watch could well be whether concern about a Brexit, which chair Janet Yellen flagged a fortnight ago, will be followed by any sort of guidance towards September, as the month in which the Fed will hike, instead of a previously expected move in July. It’s also worth keeping an eye on the US’s ‘final demand’ PPI at 1.30pm and Industrial Production at 2.15pm.
Please look out for our updates on the above market developments and others throughout the day.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.