Weekly Market Wrap: UK votes out!

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Image via © European Union 2016 – European Parliament

The markets opened on a quiet note, but the Sterling took the lead as the UK referendum campaign got underway. Early opinion polls showed that the ‘Remain’ camp gained a lead which sent the sterling higher on the news. In Japan, data from the ministry of finance showed that the economy posted the first trade deficit in 4 months. Lack of economic data for the rest of the day saw the markets taking cues from the UK referendum opinion polls.

On Tuesday the German constitutional court ruled in favor of the ECB’s OMT program saying that it was within the central bank’s mandate. The ruling put an end to nearly 4-years of debate with many academicians and businessmen in Germany filing a case against the ECB. In Australia, the RBA released its meeting minutes which showed that policymakers were concerned with the low inflation. The minutes were from the May policy meeting.

Later in the day, Fed Chair, Janet Yellen testified to the US banking committee. Her prepared statements did not waver much from the comments made during the FOMC meeting the week before. Ms. Yellen said that the FOMC expects to hike rates at a gradual pace and said that economic activity in the US will expand at a moderate pace and hopes that the labor market indicators will strengthen further. In her speech, Yellen said that the recent slowing in the US labor markets was transitory but stated that the Fed was keeping a close watch.

Meanwhile, the markets turned flat with one day to go ahead of the UK referendum vote. In Canada, retail sales were better than expected, rising 0.90% and beating estimates of 0.70% increase on a month over month basis.

On Thursday, the UK opened its polls on the EU membership. The latest polls previously released showed that the UK would vote to remain in the EU. This led to a modest risk on the rally with the sterling maintaining gains while the yen also weakened on the day. Besides the UK referendum, flash manufacturing PMI data released on the day showed that manufacturing sectors continued to struggle. Japan’s manufacturing PMI continued to show a contraction in the sector.

By early Friday morning, as votes started to be counted, it was clear that the UK was voting to leave the EU and was confirmed at 0900 UK time as the Leave camp beat the Remain by 51.90% to 48.10%. There were more developments as hours later, British Prime Minister David Cameron resigned from his post as the PM. In the US, durable goods orders fell in May. The headline number was lower than expected, falling 2.20% on the month, more than the 0.50% declines that was projected. April’s durable goods orders was also revised lower to 3.30% from previous estimates of 3.40%.

Summary of Economic events this week

  • UK Rightmove HPI m/m 0.80% vs. 0.40% previously
  • Japan trade balance 0.27tn vs. 0.13tn
  • German PPI m/m 0.40% vs. 0.40%
  • Canada wholesale sales m/m 0.10% vs. 0.20%
  • RBA monetary policy meeting minutes released
  • BoJ monetary policy meeting minutes released
  • Australia HPI q/q -0.20% vs. 0.80%
  • Japan all industries activity m/m 1.30% vs. 1.30%
  • Swiss trade balance 3.79 billion vs. 2.88 billion
  • German constitutional court ruling
  • UK Public sector net borrowing 9.1 billion vs. 9.5 billion
  • German ZEW economic sentiment 19.2 vs. 5.1
  • Eurozone ZEW economic sentiment 20.2 vs. 15.3
  • CBI industrial order expectations -2 vs. -10
  • ECB President Draghi speech
  • Fed Chair Yellen speech
  • FOMC Member Powell speech
  • Australia MI leading index m/m 0.20% vs. 0.10% previously
  • New Zealand Credit card spending y/y 5.90% vs. 9.10% previously
  • Switzerland ZEW economic expectations 19.4 vs. 17.5 previously
  • Canada core retail sales m/m 0.90% vs. 0.70%; retail sales m/m 1.30% vs. 0.80%
  • 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
  • Eurozone German Ifo business climate 108.7 vs. 107.6
  • Italy retail sales m/m 0.10% vs. 0.20%
  • ECB conducts LTRO-II operations
  • US core durable goods orders m/m -0.30% vs. 0.10%
  • US durable goods orders m/m -2.20% vs. -0.50%

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