29 June, 2016
Equity markets embraced the first rebound on Tuesday after two days of selling. The FTSE 100 and DAX indices both opened higher, finishing the day with 2.64% and 1.93% gains respectively. Sterling has also rebounded mildly from a 30-year-low. Is this a good ‘buy’ opportunity, or a chance to double the shorts? The market has good reason to go either way from here.
Market sentiment is improving, as we see the perceived safe-haven assets of gold, US treasuries and JPY retracing from their recent highs. Global central banks have pledged to inject liquidity in anticipation of potential market turmoil, which could help to mitigate the severity of any immediate global systematic risk.
More importantly, the market is expecting a near-to-zero percent chance of a rate hike by the US Federal Reserve in the third quarter this year. The implied probability of the Fed reversing last December’s quarter-point interest rate hike has risen to 20%.
However, we should also be aware that the uncertainty surrounding Britain’s relationship with the EU is likely to persist for months. This is - and will continue to be - the key event that may trigger more volatility in the near future.
The Chinese market has been very resilient against the Brexit turmoil over the last three days, although the CNH has dropped to its lowest level against USD since January. In fact, the Shanghai Composite is now traded at a level higher than before the Brexit vote.
Crude oil prices advanced on Tuesday after slumping for two days. WTI crude is traded at around $48.14 this morning. A weaker dollar has also played a role in fuelling higher oil prices. The immediate support and resistance levels for WTI crude are at $45.60 and $50.20 respectively.
The gold price has entered into a second day of consolidation due to less demand for safety. The immediate support and resistance levels are at $$1,286 and $$1,343 respectively.
In an absolutely stunning four day turnaround the FTSE100 has managed to post not only its lowest level in 4 months at the end of last week, but also its best close since April 21st as yesterday the UK main benchmark managed to reclaim all of its post Brexit losses...
It has been a torrid few days for equity markets and the pound in particular as it continues to plumb new multi-year lows against the US dollar, though we could get some respite today...
For most of last week, today speech by Fed chief Janet Yellen was being viewed through a lens of the timing potential for a June rate rise. This was largely down to some large scale expectations management by a raft of Fed officials in the lead up to Fridays May payrolls report...
Asian markets consolidated on the first trading day in June, as uncertainties surrounding the FOMC and Brexit started to dampen market optimism. The Chinese and HK markets both closed marginally lower on Wednesday due to mixed PMI data...
Equity markets continued to struggle for direction on both sides of the Atlantic last week, with the Dow posting its fourth negative week in a row and its worst losing streak since 2014, though the S&P500 did manage to eke out a weekly gain...
In short, everything was falling as the fear of a June rate hike returned to the market. According to Bloomberg world interest rate probability, the implied chance of a June rate hike has climbed to 32% from 4% over the last two days...