EU referendum in the spotlight

June 23, 2016

Sterling has soared to five-month high at 1.4810 ahead of the EU referendum today. Is the market over optimistic? The rally of risk assets over the past few days has also indicated that the market is trying to price in a ‘remain’ vote. According to Bloomberg projections, the probability of a Remain vote has climbed to 73%, ahead of the referendum.

The Monetary Authority of Singapore (MAS) has announced that they will include RMB-denominated financial investments into its Official Foreign Reserve (OFR) from this month, given the strong economic ties between China and Singapore.

Separately, China’s central bank PBOC said that it has had discussions with onshore lenders about allowing them to trade in the offshore yuan (CNH) market, a move that would narrow down the gap between onshore and offshore renminbi.

The gap between CNY and CNH was blamed for making the offshore yuan (CNH) an imperfect hedge for onshore exposures. Therefore, removing the gap would be an important step to integrating the offshore and onshore currency markets and ultimately improve the liquidity.

Crude oil prices softened last night, partly due to lower-than-expected DoE inventory numbers. The report shows that the US commercial crude oil inventory dropped by 917k barrels over the last week, lower than the market’s expectation of 1.73 million barrels.

Gold and silver prices continue to slide down, due to improving risk sentiment globally.

The risk-on sentiment resulting from favourable Brexit poll results has led to a surge of equities. Euro Stoxx index has rallied over 5% over the last five trading days. Asian equity indices - including the Nikkei and the Hang Seng - have also rallied quite a bit. The sentiment will probably continue if the referendum delivers a remain decision. On the other hand, a vote for Brexit would lead to deep disappointment and thus adversely impact market sentiment.

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