Weekly Market Wrap: Brexit, FOMC, BoJ and Other Key Topics

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The markets opened Monday on a quiet note, with not much of economic data to go by. China’s industrial production numbers were released which showed industrial production rising 5.90% on a year to date basis, while rising 6.0% on a year over year basis. However, the markets were not impacted much by the report.

Investors remained focused on the Brexit theme, which dominated the markets since last Friday. New opinion polls continued to show that the Brexit’s ‘Leave’ camp were ahead of the ‘Remain’ camp. The Sterling extended losses, briefly falling to 2-month lows before managing to pullback higher on the day. The rating agency, Fitch affirmed UK’s investment rating at AA+ but warned that it could be up for review if the UK voted to exit the EU membership. Taron Wade, global ratings director of the S&P’s corporate and government ratings, said,

“It concerns if you don’t know what the regulatory environment will be in terms of competition commission and also U.K. companies could get left out of European consolidation trends,” Wade said.

The markets were seen jittery by Tuesday. USDJPY remained weak, but the dollar seemed well bid against the euro and other currencies. Economic data on Tuesday included Japan’s industrial production which was revised higher to 0.50%, from previous estimates of 0.40% on a month over month basis. In the UK, inflation data was tame, rising 0.20% on the month, down from 0.30% in April. Eurozone’s industrial production was also higher, rising 1.10% on the month, beating forecasts of 0.80%. In the US, retail sales numbers were weaker than April but better than forecasts. Headline retail sales in the US jumped 0.50% on a month over month basis. Import prices also continued to post a steady gain for the third month, rising the most since 2012.

By Tuesday’s close, the British pound reversed the declines from Monday. Earlier in the day, the pound surged by over a 100 pips in what was attributed to a ‘Fat Finger’ trade. However, reports suggested that the spike in the GBP came on the release of new opinion polls, showing the ‘Stay’ camp gaining a lead.

In the Eurozone, Bundesbank President, Jens Weidmann said that there was no need for further monetary stimulus action from the ECB, stating that the central bank needs enough time for achieving its price stability target.

By Wednesday, the pace of economic data started to gain speed. In the UK, the monthly ILO jobs report showed that the UK’s unemployment rate fell to 11-year lows at 5.0%, down from 5.10% previously. Wage growth also saw a strong rebound largely due to the new national minimum wage laws applied in the UK since April.

Later in the evening, the FOMC was the main event of the day, with the markets largely pricing in no rate hike and expecting the Fed to leave the Fed funds rate unchanged at 0.50%. As expected, the Federal Reserve left interest rates unchanged as expected and struck a slightly dovish tone. The Fed still expects to hike rates twice this year but refrained from giving out a timetable for the same. The dollar slipped on the data while gold prices managed to surge. New Zealand’s quarterly GDP numbers were reported later that night which showed that economic expansion jumped 0.70% on the quarter, in the first three months of 2016, beating forecasts of 0.50%. On a year over year basis, New Zealand’s GDP was 2.80%, higher than forecasted.

On Thursday, the Bank of Japan’s monetary policy was the main event. As widely expected, the BoJ held back from increasing its stimulus program or cutting interest rates. The yen jumped on the BoJ’s inaction pushing USDJPY briefly below 104 levels, marking a fresh 18-month low.

Thursday was also busy with the SNB’s monetary policy meeting which saw no changes, but SNB Chairman, Thomas Jordan said that further rate cuts cannot be ruled out. He maintained the view that the Swiss franc was significantly overvalued but noted that the current monetary policies were sufficient.

Later in the day, the Bank of England’s monetary policy meeting saw policymakers voting unanimously to keep rates unchanged. The BoE focused more on the upcoming EU referendum vote noting that it would pose significant domestic and global risks to the financial markets. UK retail sales were also released earlier in the day which showed consumer spending rising for the second consecutive month. Previous month’s data was also revised higher, bringing the UK retail sales to an annualized rate of 6.0%.

In the US, monthly consumer inflation data showed moderation, rising 0.20% in May on a month over month basis. On Friday, the markets were largely flat with not much of economic data to go by. In the NY trading session, Canada’s inflation figures fell short of expectations. On a month over month basis, headline CP was 0.20% in May, unchanged from April and below forecasts, while core CPI measured by the BoC was up 0.30%, slightly better than April’s 0.20% increase. In the US housing starts and building permits data was mixed. Housing started were down 0.30% following a downward revised 4.90% increase in April while building permits grew 0.70% in May after moderating from an upward revised 4.90% month on month growth in April

Summary of Economic events this week

  • Japan industrial production m/m 0.50% vs. 0.40% y/y -3.30% vs. -3.50% previously
  • Japan capacity utilization m/m -1.0% vs. 3.20% previously
  • Switzerland PPI m/m 0.40% vs. 0.10%; y/y -1.20% vs. -1.50%
  • UK CPI m/m 0.20% vs. 0.30%; y/y 0.30% vs. 0.40%
  • UK Core CPI y/y 1.20% vs. 1.30%
  • UK PPI Input m/m 2.60% vs. 0.90%l PPI output m/m 0.10% vs. 0.30%
  • Eurozone industrial production m/m 1.10% vs. 0.80%; y/y 2.0% vs. 1.40%
  • US retail sales m/m 0.50% vs. 0.30%; retail sales control core m/m 0.40% vs. 0.30%
  • US retail sales excl. autos m/m 0.40% vs. 0.40%
  • US import price index m/m 1.40% vs. 0.70%; y/y -5.0% vs. -5.90%
  • Australia Westpac consumer confidence m/m -1.0% vs. 8.50% previously
  • Australia Westpac consumer confidence 102.2 vs. 103.2
  • France CPI m/m 0.40% vs. 0.40%; y/y 0.0% vs. -0.10%
  • UK unemployment rate 5.0% vs. 5.10%
  • UK claimant count rate m/m 2.20% vs. 2.10%
  • UK weekly earnings excl. bonuses 2.30% vs. 2.0%
  • US Empire state manufacturing 6.01 s. -4.0
  • US PPI m/m 0.40% vs. 0.30%; y/y -0.10% vs. -0.10%
  • US core PPI m/m 0.30% vs. 0.10%; y/y 1.20% vs. 1.0%
  • Canada manufacturing sales 1.0% vs. -0.90% previously
  • New Zealand GDP q/q 0.70% vs. 0.50%; GDP y/y 2.80% vs. 2.60%
  • Australia consumer inflation expectations 3.50% vs. 3.20% previously
  • Australia employment change 17.9k vs. 15.0k
  • Australia unemployment rate 5.70% vs. 5.70%
  • BoJ leaves monetary policy unchanged
  • BoJ rate -0.10% vs. -0.10%
  • SNB rate -0.75% vs. -0.75%
  • UK retail sales m/m 0.90% vs. 0.20%; y/y 6.0% vs. 3.90%
  • UK core retail sales m/m 1.05% vs. 0.30%; y/y 5.70% vs. 3.80%
  • Eurozone CPI m/m 0.40% vs. 0.40%; y/y -0.10% vs. -0.10%
  • BoE rate 0.50% vs. 0.50%
  • US CPI m/m 0.20% vs. 0.30%; y/y 1.0% vs. 1.10%
  • US core CPI m/m 0.20% vs. 0.20%; y/y 2.20% vs. 2.20%
  • US initial jobless claims 277k vs. 270k
  • US Philly Fed manufacturing index 4.7 vs. 1.
  • Canada CPI m/m 0.40% vs. 0.50%; y/y 1.50% vs. 1.60%
  • BoC Core CPI m/m 0.30%; y/y 2.10%
  • US housing starts m/m -0.30% vs. -1.90%
  • US building permits m/m 0.70% vs. 1.30%

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