US Equities Lower As Weaker USD Boost Commodities, IMF Says "Brexit" May Lead to UK Economy Shrinking 5.9% By 2019, ASX SPI200 Futures Unchanged

European equity markets were broadly higher on Friday in quiet night for data as Brexit campaigns were suspended for a second day. The FTSE100 & DAX30 were both higher +1.19% & +0.85% respectively while the Pound gained +1.08% against the US Dollar and fell -0.67% against the Euro. US equity markets failed to follow the strong European lead with both the S&P500 & Nasdaq100 declining -0.33% & -1.13% respectively as the US Dollar dropped -0.38% against a basket of its peers. Brexit concerns will continue to determine the market direction this week and it remains likely we will continue to see demand for safe haven assets such as gold as well as Japanese & German government bonds. Leading into Thursdays vote we are likely to see solid campaigning from both parties, with the Remain party pushing the economic repercussions of leaving the EU citing an IMF report released on Friday suggesting the UK will be worse off in the longer-term with GDP 5.6% lower by 2019. The remain party on the other hand will continue to argue that this is simply fear mongering and the UK will be in a stronger bargaining position following a Brexit. Overall an exit from the EU is likely to have a significantly negative impact on the economy reducing trade access with lower output leading to austerity measures in order to balance public finances while any new trade deals are unlikely to be quickly established.

Commodities were broadly weaker on Friday as the US Dollar fell with both WTI & Brent crude oil gaining +3.83% & +4.20% respectively as did Copper +0.15%, Natural Gas +1.67% and Iron Ore +0.69%. Precious metals Spot Gold & Spot Silver also gained +1.58% & +1.78% as Brexit concerns continue to support demand for the safe haven assets.

Over the past few months we have seen Japanese Finance Minister Taro Aso express concerns over what he described as “one sided speculative moves” and this view we again re-iterated last week calling for members of the G7 for coordination to address the strengthening Yen. US Treasury Secretary Jack Lew described the currency moves as “orderly” following the conclusion of the G7 summit in Japan on May 21st and reaffirmed the commitment made previously at the G20 meeting in Shanghai to “refrain from competitive devaluation”. Since these comments the Yen has strengthened a further 4.85% and 15.74% year to date shown on the second chart below. While it is unlikely any currency devaluation will be sanctioned at current levels a Brexit scenario could see the Yen strengthen significantly with the USDJPY potentially trading below 100 prompting the issue to be addressed by the G7.

Locally the ASX200 looks set to open flat with ASX SPI200 futures unchanged this morning following an +0.85% gain on Friday. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.



Source: Rivkin, Amibroker, E-Signal, Bloomberg

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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