Global Equities Rally As Remain Vote Takes Lead In Polls, Commodities Benefit From Weaker USD, ASX SPI200 Futures Up 24 Points

Global equities rallied on Monday as the latest polls tracking the upcoming Brexit vote on Thursday suggest the Remain camp has retaken a narrow lead with 44% of the vote against Leave’s 42% and critically 13% undecided. Asian equities were broadly higher led by the Nikkei225 & Hang Seng up +2.34% & 1.69% despite data that showed the Japanese balance of trade dropped to -40.7 billion Yen from 823 billion Yen in April as exports dropped 11.3% while imports decreased 13.8%. The Yen reversed initial losses to close 0.60% stronger, the Yen has strengthened approximately 15% this year despite record stimulus from the Bank of Japan as investors have sought safe haven assets over concerns of a Brexit and a more gradual rate rise in US monetary policy.

European equities benefited the most from the swing towards a remain vote in the polls, the FTSE100 & DAX30 both gaining +3.04% & 3.43% as safe haven German Bunds dropped as the yield rose to 0.05% after briefly turning negative last week. Both the Pound & Euro strengthened against the US Dollar up +2.20% & +0.28%. While the swing in momentum for polls towards a Remain vote is encouraging and supportive of risk assets the vote to close to be confident of the outcome. The slim lead by Remain suggests that the flop of a coin is as likely to predict the outcome at the moment and investors should be wearying of likely volatility in risk assets that can be impacted by the outcome given the potential for gaps higher or lower across FX, commodities, equities and bonds. While there is great uncertainty in what would following a vote to leave there would likely be emergency meetings held across Europe, with some already planned and expected there would be statements for key countries such as Germany & France that the EU remains strong. Central banks are on standby ready to provide emergency funding with the Bank of England having these arrangements already in place. The period that follows is likely to be one of uncertainty, Britain would then have a two year period where European laws & agreements would continue to apply as it negotiates an exit. The Leave party is counting that Britain will be in a stronger bargaining position during these negotiations and that it is in Europe’s interest to set up beneficial arrangements with the UK . The other scenario is that the EU will take a strong stance against Britain to send a message to other European countries where there is growing discontent that countries outside the EU will not receive the same benefits and this would be critical to emphasize to limit any potential contagion effect.

The US Dollar index dropped -0.63% helping to boost commodities, both WTI & Brent crude oil gained +2.90% & +3.01% respectively, Iron Ore was unchanged, Copper rose +2.05% while Natural Gas was the best performer jumping +4.73% unusually warm temperatures across the US increase demand from power plants for the commodity. Precious metals Spot Gold & Silver both dropped -0.67% & -0.01% as Brexit fears subsided.

Locally the ASX200 gained on Monday up 1.82% led by the resources & financials. Meanwhile the market is set for another strong open this morning with ASX SPI200 futures up 24 points. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account. 

Data releases:

·         Reserve Bank of Australia June Meeting Minutes 11:30am AEST

·         Australian House Price Index (Q1 YoY) 11:30am AEST

·         German Constitutional Court Rules on legality of ECB’s OMT program 6:00pm AEST

·         German & Euro-zone ZEW Economic Sentiment Survey (Jun MoM) 7:00pm AEST

·         Bank of England Second round of ITLR Operations for EU Vote 7:00pm AEST

·         ECB President Mario Draghi speaks in Brussels 11:00pm AEST

·         Janet Yellen testifies on Monetary Policy to Senate Banking Panel 12:00am AEST


Source: Rivkin, 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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