Daily Market Digest: UK Votes, Manufacturing Remains Weak

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UK opened its doors to the EU referendum voting this morning as latest opinion polls put the Remain camp in the lead. Voting is expected to continue until 21:00 GMT with results being announced later tomorrow. In other news, manufacturing PMI’s continued to remain weak across the board.

Today’s Economic events

  • Japan flash manufacturing PMI 47.8 vs. 48.2
  • French flash manufacturing PMI 47.9 vs. 48.8
  • French flash services PMI 49.9 vs. 51.5
  • German flash manufacturing PMMI 54.4 vs. 52.1
  • German flash services PMI 53.2 vs. 55.0
  • Eurozone flash manufacturing PMI 52.6 vs. 51.4
  • Flash services PMI 52.4 vs. 53.2
  • RBA Assistant Gov. Debelle speech
  • EU membership vote underway
  • US weekly unemployment claims 259k vs. 271k

Coming Up

  • US Flash Manufacturing PMMI
  • The US new home sales
  • CB leading index

Japan’s manufacturing sector moderates in June

Flash estimates of the manufacturing sector surveyed by Markit and Nikkei showed a moderation as the flash manufacturing PMI rose to a seasonally adjusted 47.8 in June, compared to 47.7 in May. It was the fourth month of decline in the manufacturing sector with the index remaining below the 50 level that separates expansion from contraction. New orders increased to 45.8 compared to the previous month’s 44.7 but remained in contraction for the fifth consecutive month.

Markit economist Amy Brownbill said “Latest survey data pointed to a further deterioration in manufacturing conditions in Japan. Both production and new orders declined at marked rates, led by a sharp drop in international demand.” In a note, Markit also said that the earthquakes in April continued to have a negative impact on the PMI data. Japan was rocked by earthquakes in mid-April affecting the southern manufacturing hub of Kumamoto.

Employment was also seen to be weaker, with the employment growth in the manufacturing sector easing to the weakest levels in nine months.

Saudi Oil Minister signals end to supply glut

Saudi Arabia’s new oil minister, Khalid Al Falih during a visit to the US said that the kingdom will soon be balancing supply and demand amidst a recovery in the oil markets. He said that Saudi Arabia was preparing to reassert its control over the oil markets after prices fell for nearly two straight years. In an interview with the Houston Chronicle, Al Falih said “We are out of it. The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out.”

Marking a shift in policy from his predecessor, Ali al-Naimi who opted to keep the supply taps open since late 2014, the then oil minister fearing that US shale and Canadian tar sands were eating into Saudi’s market share embarked on a long and tough road which nearly put many other oil-producing nations at a large budget deficit. Al-Naimi resigned after the failed Doha talks and the new minister; Al Falih has so far managed to ratchet up support among the 14 members OPEC countries. Al Falih said that the OPEC group should encourage the rebalancing.

Saudi Aramco, the Saudi state-owned Oil Company, also reiterated his comments saying that the Kingdom’s oil policy was rooted in responsibility after meeting with officials from the US department of energy. Mohammed bin Salman, the deputy crown prince of the kingdom, said “Due to its strategic importance, will be expected to balance supply and demand once market conditions recover. Saudi Arabia is seeking to maintain that balance while also giving heed to moderate prices for producers and consumers.”

Markets rally as UK referendum vote gets underway

The UK poll centers opened this morning at 06:00 GMT and polling is expected to close at 21:00 GMT. The last opinion poll, an online survey from Populus, which carried a sample size of 4700 showed that the Remain camp was leading by 55%, while the Leave camp trailed at 45%. Prior to the poll from Populus, an earlier poll from Ipsos Mori for the UK’s Evening Standard showed the Remain camp ahead by a 4 point lead at 52%.

The sterling continued to extend its gains since gapping higher on Monday. After an initial spike lower, GBPUSD continued to post fresh 2016 highs, briefly hitting session highs below 1.495 before pulling back. While the markets have braced for the worst case scenario with central banks standing by, the market reaction so far has been in the positive. US stock futures which closed flat yesterday are showing a 1% gain ahead of the market open. Chris Rodgers, the founding partner at asset manager Sanlam FOUR in London, said, “The market is on tenterhooks. If there is a vote to leave now, the market will be pretty shocked.” Julien Jarmoszko, the European equities manager at S&P Global Markets Intelligence, says “if we have a Remain vote tomorrow, we should have a relatively muted market reaction.”

While there are no official exit polls, rumor has it that some private hedge fund managers have commissioned pollsters to conduct exit poll surveys which could see some volatility in the markets. After the polls close, initial results are expected to flow in from 2330 GMT tonight with the official and final results being announced tomorrow morning at 0900 UK time.


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