- Risk appetite may further strenghten as new polls on the EU referendum indicate that the “remain” campaign is closing the gap
- The pound sterling rise is improving odds that the UK will remain in the European Union
- However, we remain positive on the Japanese yen as the high degree of uncertainty about the outcome will be supportive for safe haven assets ahead of Thursday’s outcome
- Gold prices may continue to trade sideways ahead of Thursday. In the event of a Brexit, gold prices will most likely go through the roof, moving quickly towards the 1,400 level
- If Brits decide to stay the EU, gold will reverse sharply, with the 1,200 level as first target
- The single currency is now moving towards the 1.14 resistance area and is the riskiest currency to hold ahead of the Brexit vote
- We believe that the BoJ, which has decided not to add further stimulus last Thursday, is waiting to assess the market impact that the Brexit referendum may trigger
- According to the results, uncertainties may increase and this would push the central bank to react as the Japanese economy is facing difficulties and as a result we clearly expect that further stimulus will be added in July
Risk appetite has come surging back as new polls on the EU referendum indicate that the “remain” campaign is closing the gap. The pound sterling rose the most among the G10 complex amid improving odds that the UK will remain within the European Union. Over the last few weeks the market has been moving back-and-forth between risk-on and risk-off mode as pollsters released contradictory temporary results. This morning, the latest poll showed that the “Stay” camp is gaining traction; therefore, the market has switched to risk-on mode with investors buying the pound sterling, the euro and equities, while dumping gold and the Japanese yen. A Bloomberg composite poll indicates a 45% to 42% lead for “remain”.
Investors are turning their back on the Japanese yen as risk sentiment improves. USD/JPY surged 0.50% at the opening and hit 104.85 before stabilising at around 104.65. However, we remain positive on the Japanese yen as we are heading towards the vote. The high uncertainty about the outcome, which is exacerbated by the weak reliability of polls in such a tight race, will be supportive for safe haven assets ahead of Thursday’s outcome.
Yann Quelenn, market analyst: Japan: Concerning trade balance data: “As a result of ongoing global uncertainty, investors are looking for political stability in Japan, despite the fact that the country’s fundamentals remain weak. Japan’s trade data for May was released last night showing that the deficit has increased by yen 41 billion when financial markets were actually expecting a decrease of the same amount. Exports are suffering from a stronger yen and declined by 11.3% y/y in May, continuing the downward trend line from April when exports dropped 10.4%. Exports with China, main Japan’s commercial partner saw a particularly large drop declining by 14.9%. Toward the United States, exports have also recorded a strong loss of 10.7%. The recent appreciation of 15% of the yen has largely contributed to the decrease in Japanese exports. Last week the yen reached a 21-month high against the greenback and currently stands at 104 yen for a dollar note. We are in a period where risk-off sentiment dominates and this is definitely weighing on the Japanese economy. We believe that the BoJ, which decided not to add further stimulus last Thursday, is waiting to assess the kind of market impact the Brexit referendum will trigger. According to the results, uncertainties may increase and this would push the central bank to react as the Japanese economy is facing difficulties and as a result we clearly expect further stimulus to be added in July. Worryingly, Japan’s newswires are reporting that the BoJ holds more than a third of all JGB. The size of the BoJ’s exposure in rates indicates the limit of further monetary policy expansion. GBPJPY rose to 104.30 early on UK “remain” polls.” —
Gold is having another tough day as it fell 1.20% in Tokyo. Even the uncertainty generated by the British situation has not allowed the yellow metal to break the strong resistance implied by the high from January 22nd 2015 at $1,307.62. Gold prices will continue to trade sideways ahead of Thursday. In the event of a Brexit, the price of gold will most likely go through the roof, moving quickly towards the 1,400 level. However, if Brits decide to stay in the EU, gold will reverse sharply, with the 1,200 level as the first target.
EUR/USD also had a great night. The single currency gained 0.80% against the greenback and is now moving towards the 1.14 resistance area (previous high and psychological level). From our standpoint, the single currency is the riskiest currency to hold ahead of the Brexit vote as the consequences for the EU are very unclear and will likely generate a high degree of political uncertainty. We therefore recommend caution when trading EUR crosses.
In the equity market, Asian regional markets were trading higher across the board with the exception of Chinese equities. The Nikkei and Topix index were up 2.43% and 2.44%. In Hong Kong the Hang Seng rose 1.23%, while in Taiwan, the Taiex surged 0.68%. In mainland China, the Shanghai Composite edged down 0.05%, while the tech-heavy Shenzhen Composite added 0.27%. In Europe, futures are trading in positive territory with futures on Footsie surging 2.66%. US futures are also pointing towards a higher open.
Today traders will be watching PPI from Germany, SNB’s sight deposit from Switzerland; wholesale trade sales from Canada; unemployment rate, real wages and retail sales from Russia; weekly trade balance from Brazil.
Energy stocks drag down FTSE 100, IG Group slides
By Shivani Kumaresan
(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.
The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.
Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]
“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.
“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.
British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.
IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.
Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.
Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)
Wall Street bounce, upbeat earnings lift European stocks
By Amal S and Sruthi Shankar
(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.
The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.
All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.
Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.
Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.
Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.
The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.
“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.
The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.
“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.
Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.
Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.
Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.
Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.
(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)
Miners lead FTSE 100 higher on earnings cheer
By Shivani Kumaresan
(Reuters) – UK’s FTSE 100 rose on Wednesday as miners gained after a strong production forecast from BHP Group, while encouraging updates from luxury brand Burberry and education group Pearson drove optimism about the earnings season.
BHP Group Ltd climbed 2.8% after it forecast record iron ore production for fiscal 2021, helped by high prices for the commodity. Other miners Rio Tinto, Anglo American and Glencore rose more than 2%.
Global markets rallied in anticipation of more fiscal spending as Joe Biden prepared to take charge as the 46th U.S. president.
“There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note,” said David Madden, market analyst at CMC Markets UK.
The FTSE 100 index rose 0.4% and the domestically focussed FTSE 250 index added 1.4%.
The FTSE 100 has recorded consistent monthly gains since November after the sealing of a Brexit trade deal and hopes of a vaccine-led economic recovery, but has recently lost steam as tighter business restrictions sparked fears of a slow rebound.
Burberry rose 3.9% as it stuck to its full-year goals and said higher full-price sales would boost annual margins and Asian demand remained strong.
Global education group Pearson jumped 8.6% after its global online sales grew 18% in 2020, helped by strong enrolments in virtual schools.
WH Smith Plc surged 10.4% to the top of the FTSE 250 index as its trading during Christmas was ahead of its expectations.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, William Maclean)
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