Market Roundup
- GBP/USD -3.3%, USD/JPY -0.4%, EUR/USD -0.7%
- DXY +0.13%, DAX -1.5%, Brent +0.08%, Iron +6.0%
- Germany Merkel-must act to prevent other countries fleeing EU
- UK Dep. Labour leader, Tom Watson tells Jeremy Corbyn to resign
- Corbyn witnessed weekend shadow cabinet resignations-3-more today
- Osborne-UK public finances would suffer as a result of the vote to leave the EU
- Osborne-New fiscal measures would not be proposed until a new PM in place
- SNB sight deposits sharply higher latest week
- EZ May M3 4.9% vs 4.6% previous, 4.8% exp
- EZ May Loads To Non-Financials 1.4% vs 1.2% previous, 1.2% exp
- Japan PM Abe – Instructed FinMin Aso to take necessary FX steps
- Japan govt mulls boosting stimulus package to over 10 tln yen
- BoJ DepGov Nakaso – No problems so far in market liquidity
- MoF Asakawa – Market trying to find new equilibria
- Ex-BoJ Momma – BoJ can stand pat if Brexit turmoil temporary
- Japan LDP Inada – Bold new steps to stem JPY rise needed – NHK, Nikkei
- IMF Lagarde – market vastly underestimated Brexit vote but no panic
- BIS - Urgent need for global policy action, cites “risky trinity”
- BIS- central banks to smooth Brexit-related turmoil
- Germany CDU Krichbaum – Scotland welcome to join EU – Wa-Sonntag
Economic Data Preview
- (0830 ET/1230 GMT) The U.S. releases goods trade balance report for the month of May. The indicator is expected to decline $-59.5 bln from previous $-58.0 bln in April.
- (0900 ET/1300 GMT) Mexico releases trade balance data for the month of May. The economy posted a $1.953 billion trade deficit in April, adjusting for seasonal changes. In non-seasonally adjusted terms, it reported a trade deficit of $2.080 billion.
- (0945 ET/1345 GMT) Financial data firm Markit reports its preliminary U.S. services Purchasing Managers' Index for the month of June. Services sector final PMI for May came in at 51.3.
- (0945 ET/1345 GMT) Markit is likely to report that preliminary U.S. composite Purchasing Managers' Index for the month of June stood unchanged at 50.9.
Key Events Ahead
- N/A Bretton Woods Committee holds its annual meeting. Speakers include U.S. Treasury Secretary Jack Lew, International Monetary Fund Deputy Managing Director David Lipton and World Bank Chief Operating Officer Sri Mulyani Indrawati.
- (1130 ET/1530 GMT) The European Central Bank begins its three-day Forum on Central Banking, in Sintra, Portugal. European Central Bank President Mario Draghi will speak at the forum.
FX Beat
USD: The dollar index, against a basket of currencies was trading 1 percent higher at 96.50, hovering towards a high of 96.70 struck in the previous session.
EUR/USD: The euro trades lower at 1.0988, failing to sustain above the 1.1000 level against a backdrop of increasing turbulence in the financial markets following the Brexit vote. The major continues to remain under immense pressure as market participants assess the potential economic and political implications of Britain leaving the European Union. The short term trend is slightly weak as long as resistance 1.1102 holds. Any break above 1.1082 (hourly Tenken-Sen) will take the pair to next level till 1.1102 (200 day MA)/1.1188 (high made after Brexit)/1.1235 (61.8% retracement of 1.14278 and 1.1091). On the lower side any break below 1.09840 (Session’s low) will drag the pair down till 1.0900 (161.8% retracement of 1.14155 and 1.0971/1.0834 (61.8% retracement of 1.10852 and 1.09119).
USD/JPY: The Japanese yen strengthened, benefiting from safe-haven flows and fading expectations of an imminent Fed rate-hike during 2016. The greenback trades 0.5 percent lower at 101.58 yen after rising to an early high of 102.47. Investor sentiments would continue to be driven by developments surrounding the Brexit referendum, boosting the safe-haven yen. The short term trend is slightly bearish as long as support 103.50 holds. The minor resistance is around 103.50 and any break above confirms minor trend reversal, a jump till 105/105.80 is possible. On the lower side minor support is around 100 and any break below 100 will drag the pair till 98.80/98.
GBP/USD: Sterling slumped below the 1.3200 level as investor’s sentiment remained weak after Britain voted to exit the European Union, spurring global markets turbulence. The major recovered slightly after British finance Minister George Osborne said the government had strong contingency plans. However, with political crisis surrounding Britain and no clarity about when the economy would leave the EU or on what terms, the pound skidded to a low of 1.3192, its lowest since 1985. Sterling was down 3.2 percent at 1.3224, while against the euro, it was trading 3 percent lower at 83.33 pence. On the higher side, major intraday resistance is around 1.3333 (hourly Tenken-Sen) and any break above 1.3330 will take the pair till 1.3562/1.3875/1.4000. On the lower side any break below 1.3220 will drag it till 1.3020/1.2765.
USD/CHF: The Swiss franc declined as the dollar strengthened across the broad. The greenback trades 0.4 percent higher at 0.9751, hovering towards a high of 0.9802 struck in the previous session. The pair faces strong resistance around 0.9830 and any break above targets 0.9870/0.9900. On the lower side, major intraday support around 0.974 and any break below targets 0.9680/0.9630/0.9580. Overall bullish invalidation is only below 0.9500. Any break below this level will drag it down till 0.9445/0.9370.
AUD/USD: The Australian dollar declined, but recovered some ground to trade above the 0.7400 level. The Aussie came under renewed selling pressure after Chinese central bank devalued yuan. The major continues to trade 0.8 percent lower at 0.7412, having touched a low of 0.7385 earlier in the session. On the higher side, resistance is located at 0.7450 and any break above major resistance will take the pair till 0.7510/0.7580. The major support is around 0.7370 and break below will drag it till 0.7320/0.7280.
NZD/USD: The New Zealand dollar failed to sustain gains above the 0.7100 as investors rushed towards safe-haven assets amid financial market turmoil. The Kiwi was weighed down by declining oil prices and after the Chinese central bank devalued yuan. The major trades 0.7 percent lower at 0.7063, having touched an early high of 0.7114. Immediate support is seen at 0.7019 (20-DMA), break below could take the pair to 0.6969 (Previous Session Low). On the higher side, resistance is located at 0.7140 (5-DMA).
Equities Recap
European shares slumped as Britain's vote to leave the European Union drove investors towards safe-haven assets such as the yen, gold and low-risk government debt.
MSCI's broadest index of Asia-Pacific shares outside Japan edged down 0.1 percent.
The pan-European FTSEurofirst 300 stocks index, which dropped 7 percent on Friday in its biggest fall in nearly eight years, was down 2.1 percent. Spain's IBEX reversed gains after rising 2.5 pct, it was last down 0.1 pct.
Germany's DAX slumped 1.5 percent, France CAC dropped 1.3 percent, Britain's FTSE 100 share index, which lost 3.2 percent on Friday, declined further 1.2 percent.
Tokyo's Nikkei gained 2.39 pct at 15,309.21, Australia's S&P/ASX 200 index rose 0.45 pct at 5,136.00 points and South Korea's KOSPI 200 edged down 0.07 pct.
Shanghai composite index added 1.5 pct at 2,895.70 points, while CSI300 index climbed 1.4 pct at 3,120.54 points. Hong Kong’s Hang Seng index lost 0.2 pct at 20,227.30 points.
Commodities Recap
Oil prices declined as market participants continue to absorb the shock of last week's vote in Great Britain to leave the European Union. Brent crude oil was 0.4 percent down at $48.17 a barrel by 1042 GMT.
Gold extended gains, hovering towards a more than 2-year high touched in the previous session amid economic and political uncertainty after Britain voted to exit the European Union. Spot gold rose as high as $1,335.33 an ounce and was trading at $1,328.69 by 1044 GMT. It rallied as much as 8 percent on Friday to peak at $1,358.10, its highest since March 2014. U.S. gold for August delivery was up 0.7 percent at $1,331.10 an ounce.
Treasuries Recap
The US 10-year Treasury note yield is set to hit 4-year intraday low of 1.40 percent on unexpected Brexit vote. Also, the probability that the Federal Reserve will tighten this year has tumbled to 15 percent, from 76 percent, which boosted demand for fixed income securities. On Friday, the 10-year T-note yield settled down about 20 basis points to 1.58 percent. Meanwhile, the yield on the benchmark 10-year Treasury note fell more than 10 basis points to 1.470 percent and the yield on short-term 2-year note dipped 8 basis points to 0.574 percent by 10:40 GMT.
The Eurozone government bonds climbed after UK voters decided to leave the European Union in last week's referendum. The benchmark German 10-year bonds yield fell 5 basis points to -0.100 percent, French 10-year bunds yield dipped 6 basis points to 0.322 percent, Irish 10-year bonds yield moved down 8 basis points to 0.770 percent, Italian equivalents inched lower nearly 4-1/2 basis points to 1.439 percent, Netherlands 10-year bonds yield tumbled 4 basis points to 0.172 percent, Portuguese 10-year bonds yield dwindled 3 basis points to 3.339 percent and British 10-year bonds yield ticked down 13 basis points higher to 0.958 percent by 11:00 GMT.
The Spanish government bonds jumped after Acting Prime Minister Mariano Rajoy defied opinion polls to consolidate his position in the country’s general election after Brexit rocked the world’s financial markets last week. The benchmark 10-year bonds yield slid 18 basis points to 1.463 percent by 11:10 GMT.
The UK gilts yield fell to an all-time low after Britain has voted to leave the European Union after 43 years in an astonishing referendum that threatens the breakup of the nation. Also, rising possibilities of further policy easing form the Bank of England drove investors towards safe-haven buying. The yield on the benchmark 10-year gilts fell more than 14-1/2 basis points to 0.944 percent, yield on super-long 40-year bonds dipped nearly 13 basis points to 1.602 percent, yield on 30-year gilt tumbled 14 basis points to 1.806 percent and the yield on short-term 2-year note slid 13 basis points to 0.143 percent by 09:15 GMT.
The German bunds continue to trade lower after Britain has voted to leave the European Union in a historic referendum. The benchmark German bund yield also dropped below its recent record low of -0.04 percent to as low as -0.17 percent at one point. We foresee it to trade between -0.15 percent to -0.05 percent range in the short-term. The yield on the benchmark 10-year bonds fell 4-1/2 basis points to -0.096 percent, yield on super-long 30-year bonds dipped nearly 10 basis points to 0.339 percent and the yield on short-term 2-year note tumbled 1/2 basis points to -0.644 percent by 08:50 GMT.
The Japanese short-term government bonds traded nearly flat on Monday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. On the other hand, long-dated bond yields fell to record low after UK voted in favour of Brexit. The yield on the benchmark 10-year bonds hovered around -0.20 percent mark, short-term 2-year JGB yield remained steady at -0.27 percent, super-long 40-year bonds dipped 5 basis points to 0.129 percent and the yield on 30-year JGB tumbled 3-1/2 basis points to 0.101 percent by 07:15 GMT.
The Chinese sovereign bonds strengthened as Britain voted to leave the European Union in a referendum after 43 years of membership in the bloc on Friday. Also, slow growth in China's industrial profits spurred demand for safe-haven assets. The yield on the benchmark 10-year bonds moved lower 4-1/2 basis points to 2.903 percent.
The New Zealand government bonds market traded modestly firmer amid global uncertainty over the UK vote to leave the EU after 43 years of membership in the bloc. The yield on benchmark 10-year bond fell 1-1/2 basis point to 2.375 percent, yield on 7-year note also dipped 1-1/2 basis point to 2.075 percent and the yield on short-term 2-year note tumbled 1 basis point to 2.015 percent.
The Australian government bonds slumped as investors cashed in profit after sovereign bonds climbed to its record levels after the United Kingdom voted to end 43 years of European Union membership after a bitterly divisive referendum campaign that ended dramatically Friday. The yield on the benchmark 10-year Treasury note rose more than 7 basis points to 2.050 percent and the yield on short-term 2-year note jumped nearly 5-1/2 basis points to 1.589 percent by 05:20 GMT.
